Why Disrupting Real Estate Brokerage is Hard (Part III): The Power of Social Connections

When the rideshare apps UberX and Lyft burst onto the scene in the early 2010s, car-based transportation changed rapidly. Even as Uber ran into legal challenges and organized protests around the United States and the world, its app spread like wildfire. From the perspective of a consumer, the value proposition of rideshare apps was just too strong: cheaper transportation, no awkward payment at the end of a ride, and nicer, cleaner cars that did not rattle and shake like nearly every Yellow Cab seems to.

The effect of UberX and Lyft on the taxi industry was (and continues to be) catastrophic. Since the beginning of early 2015 in New York City, for instance, the number of taxi trips per day has roughly halved (read more here):

How does this relate to disrupting real estate brokerage, you might ask? I think rideshare apps are an interesting lens through which to examine the disruption of real estate brokerage from two angles. The first of these I will touch on only briefly: things start slow, then happen fast. If you owned a taxi medallion in New York City, rideshare apps were likely an interesting distraction until, suddenly, they weren’t. The inexorable rise of Uber and Lyft started really hammering the number of NYC taxi trips around the turn of the new year in 2016, and it hasn't stopped since.

Rideshare apps, however, had a major tailwind that real estate disruptors do not: they were disrupting an industry, not relationships with family and friends.

It is exceedingly easy to paint the taxi industry as a laggard that has neither updated its technology nor catered to the changing behavior of consumers because it is a faceless industry that is being targeted. At least for the young, urban professional set of initial UberX users, the people (i.e. taxi drivers) who were being affected by the rapid change in consumer behavior were largely not neighbors or family members. Instead, the people who felt the brunt of the disruption tended to live elsewhere and thus seemed faceless and distant from the screen of your cell phone as you ordered a car.

Not so in real estate. As compared to the rise of the rideshare apps, in the real estate industry consumers tend to focus more on real estate agents than they do faceless industries. It is real estate agents that are being affected, not faceless cab companies and drivers that live far off, out of sight and out of mind.

Real estate agents are friends, acquaintances, and family members. The plurality of home sellers find their real estate agent due to that agent being referred by (or actually being) a friend or family member. See Exhibit 7-1 of the National Association of Realtors’ 2018 Home Buyers and Sellers Generational Trends Report. 

Disrupting real estate brokerage is—to a far greater degree than was the disruption of the taxi industry—disrupting the jobs of people that we have to live with or see frequently. Further, it’s disrupting the emotion-based relationships and bonds that often prompt someone to hire those people.

Saying “no” to a real estate agent because a disruptor like Door.com is going to save you $10,000 on your next home sale or purchase means actually telling someone “no” to their face. That doesn’t feel good. Saying no to a taxi driver means ordering a car on your app; no face-to-face interaction required.

I think of this problem a bit like the classic trolley problem that many of us learned about in introductory psychology courses in college. There is a trolley—in this case your home purchase—moving down the tracks. If you don’t do anything, it is very likely that your friend Sarah is going to remind you that she is a real estate agent and you’ll buy a home with her. You’ll end up with a beautiful home, and Sarah will end up with (in all likelihood) 3% of the purchase price of that home as an indirect payment from you.

However, you could make the decision to use Door.com and receive cash back when you buy your home. That decision requires making a choice and that choice likely requires you to explain your decision to Sarah at a cocktail party in the near future. The activation energy required to both choose a disruptor like Door.com and also choose to have that awkward conversation with Sarah is frequently insurmountable.

I have had over a dozen friends and acquaintances of varying closeness buy/sell their home with a traditional real estate agent despite the fact that they knew Door.com would save them thousands of dollars. Four years ago, when I founded Door, I thought that the monetary savings would be a far more powerful hook than I think they turned out to be, especially in scenarios involving personal relationships with traditional agents. Monetary savings is a good, but not sufficient, reason to use a company that is trying to disrupt the real estate brokerage industry.

Disruptors in this space should remember that we are not trying to drive a wedge between consumers and companies (as in the taxi industry). Instead, we are trying to pry consumers away from friends and acquaintances—one of the ~2M real estate agents in the country—and social bonds that are incredibly strong. 

It is primarily for this reason that I believe that any real estate disruptor must build a strong brand, based on trust, in order to win in the long run. “Referral from a friend or family member” is here number one way in which Americans find their real estate agent for a good reason: we trust our friends and family. 

Read more about why disrupting the real estate brokerage industry is hard by reading my piece on price anchoring.