How Do Consumers Choose An Agent, Part II: The Tyranny of Ordered Lists

Mar 14, 2008  |  Michael Wurzer

In Part I, I discussed how (and if) consumers’ search for listings is related to their selection of an agent.   Questions were raised about whether leads from listings are converting to customers, especially from an MLS listing portal like HAR.com or any site that promotes the listing agent, given the challenge of single-agent dual agency and (or any listing agent).  What does the consumer want?  What is their natural decision-making path to selecting an agent?

According to the NAR 2007 Survey of Home Buyers and Sellers, “Forty-one percent of sellers found their agent as a result of a referral, while 23 percent used the agent in a previous home purchase. Similarly, 43 percent of buyers relied on referrals to find an agent, while 17 percent of repeat buyers used an agent from a previous transaction.”  In a year earlier survey, “7 percent [of buyers] found an agent on the Internet.”  These stats would need to have changed dramatically to avoid the conclusion that consumers don’t choose agents based from listing searches or from the Internet at all.   Rather, as then NAR President Pat Coombs said, “Real estate is very much a face-to-face people business”.

At the same time, the web undoubtedly is providing new ways for people to meet each other and the value of a relationship is often being tested by data.  More sites are exposing consumer reviews, pricing, and other data to the consumer to help them make decisions about which agent to choose.  There are sites like HomeGainHomethinking, Agent Scoreboard, Agentopolis, and Incredible Agent that provide a variety of agent search capabilities.  Some sites, like HomeGain, provide ways to compare agents on criteria like commission rates, years of experience, and consumer feedback. Others, like Homethinking, focus on productivity statistics, like homes sold and price ranges.

With little question, sites that provide more information to consumers are a good thing.  Consumers clearly are looking for short-cuts to decide which agent to choose and, as noted above, the current short-cut is the personal referral, born of trust, whether deserved or not.  The efficiency of the personal referral appears hard to beat.  With just a few words, backed by personal trust, your friend or relative is able to communicate a wealth of complex information into a decision.

As web 2.0 companies slice and dice the data, however, I wonder if that efficiency can be matched?  Is there an algorithm that will truly help consumers find the right agent?  The 2006 NAR survey referenced above found “the most important factors in choosing an agent for buyers are honesty and integrity, followed by the agent’s reputation. Other important qualities buyers value in an agent include knowledge of the purchase process and responsiveness. For sellers, the most important factor in choosing an agent is reputation, followed by honesty and trustworthiness.”  Given this, one would think sites providing consumer feedback about their experience with an agent would be very valuable, but does the wisdom of crowds math apply when the number of referrals an agent may get on-line in any given time-period is pretty low?  Will one or more sites gain enough critical mass that this data can be aggregated in a meaningful way?

Perhaps more importantly, is it possible to synthesize this data into a “score” or “rank” in order to provide the consumer with a recommendation?  This is what I’ll refer to as the tyranny of the ordered list.  Whatever the method is for the agent search, the output is an ordered list, with someone coming out an top, just like we see with Google search results.  The search algorithm is designed to bring the “best” match to the top.   Even leaving aside the fact that many of the sites linked above have revenue models that create conflicts of interest to place certain agents near the top of the search results (or at least to the side like Google AdWords), the reality is that matching a specific consumer’s needs to a specific agent’s qualifications remains ridiculously complex.

Are these ranking sites really helping consumers?  They are providing more data but is the data useful?  The power of a ranked list is daunting, because it provides an easy short-cut.  Why look at agent two or three when there is a number one?  Yet is that ranking really anything more than arbitrary given the complex factors involved?  Does the ordered or ranked list cut off due diligence when it really should just begin?

Perhaps the natural path for agent selection on-line is through social networking.  From general sites like Facebook, LinkedIn, and MySpace to real estate specific sites like Trulia, Zillow, PropertyQube, ActiveRain and many, many others, the opportunities to meet people on-line is growing at a rapid rate.  To this end, however, I think many are seeing panaceas where none exist.  Just the other day, Dustin linked to a post from Curbed about a consumer being freaked out by their agent trying to befriend them on Facebook.

In this regard, the social networking tools Trulia and Zillow have provided surrounding listing content seem like a promising way for agents to build trust among consumers, but that brings us right back to the tyranny of the ordered list.  Jonathon Dalton and Jay Thompson have been posting for some time about the ranking Trulia provides (or provided?) based on the highest number of answers, which resulted in a bunch of agents providing lots of answers of questionable quality in areas they knew little or nothing about.

In the end, modeling the consumer selection of an agent on-line is tricky business at best, and the personal referral is likely to dominate for some time to come, and, in many ways, I think this is a good thing.  I consider, for example, brokers like Jay Thompson who just went independent and is building a great brand on-line through his blog and other sites the cream of the crop as to how an agent can communicate their value proposition to consumers.  That value proposition will be very difficult, if not impossible, to measure or rank, but the web makes it possible for consumers to connect anyway.

17 Responses to “How Do Consumers Choose An Agent, Part II: The Tyranny of Ordered Lists”

  1. Lots to think about here.

    Despite their ubiquity I question the efficacy of referrals from a consumer’s perspective and would love to get your take on that angle. There’s too much money at stake to simply “find a Realtor” and just ‘coz my uncle liked working with you doesn’t mean that you’re the right Realtor for me. Far from it. When I consider the stigma attached to “Realtor” and the fact that most clients still find their Realtor via referrals, the logical conclusion is that referrals are broken; they’re a suboptimal way to find a great Realtor.

    Your criticism of ordered lists is on the money but you’re wrong in assuming that they’re all that web2.0 has to offer. We have no ordered lists on Zillow yet consumers are finding Realtors on the site every day. Consider:

    1) Consumers can now find a Realtor BEFORE they even need one. Thanks to Web2.0, buyers and sellers are now starting discussions with Realtors long before needing their services. Those discussions yield friendships and trust that in many cases is more compelling than the trust you can assign to a referral. Speak to a Realtor whose blog is working for them and you’ll see what I mean – the leads they receive via e-mail are from people who “met” them while reading their blog and have made up their minds that they want to work with the blogger. No interview required. No ordered list required.

    2) Transparency. I don’t need a referral if I have perfect access to your track record.

  2. Interesting post.
    Hi David,
    Its Louis from HomeGain

    In concept I think that if there is an agreed upon set of critieria that matter and a large enough sample then we might not need referrals. Its a tough putt though getting people to agree on what matters in chosing a realtor. I am not conviced, however as you suggest, that the best way to select a realtor is on the basis of the realtor’s blog. A good blogger and good realtor are not necessarily the same person.
    Kristal Kraft recently discussed the topic of agent evaluation on the Homegain blog, noting the difficulties in doing so.

    http://blog.homegain.com/agent-evaluation-mistake-opportunity

  3. Mike Farmer says:

    It seems with all the pontification regarding “bad” agents in the past few years, there should be good ideas about what constitutes a “good” agent,
    unless it’s true that people know how to denigrate but when challenged to give their ideas of a better alternative they’re stumped.

    I agress with Louis, blogging is only a part of it and doesn’t give a true picture of competence in actual practice.

    It wouldn’t be difficult to determine basic criteria that separates experience and results from inexperience and no results. Whether it’s good to have a public site making this distinction is another issue, but it can be done. I beleive I’ll write a post on Bonzai about this. That ought to make me even more popular.

  4. “Does the ordered or ranked list cut off due diligence when it really should just begin?”… This is the question we will be answering very soon. Keep your eyes out.

  5. Mike Farmer says:

    IncredibleAgent is a consumer review site? I need to get my brother to write up something wonderful. 🙂

  6. Russell Shaw says:

    All industry “rating systems” will ultimately amount to nothing. The very idea that a referral from a friend is a flawed system indicates that that the main point that is actually important to the consumer has been totally missed. Competence isn’t the main issue for most consumers and certainly not if looking for an agent so they can buy a home. Honesty is the main issue. I doubt that a better “system” than a referral from a trusted source (which will never be an online website) will be devised in the next thousand years.

    All consumers accepting an online source are the same type consumers who will call me as a result of my TV and radio ads: people who don’t already have an agent or a strong referral from a friend or relative. Because if they do already have someone they know and trust, I just don’t get those calls.

  7. Yes Mike…one of our products is a consumer review site. http://www.IncredibleAgentS.com (With an “S”). We also have many other projects…with more to come.

    Russell, a referral is obviously the #1 way to find an agent today…but what if you wanted to check that referral against other resources? Where would you turn if your friend Jim referred you to Agent Jill? What if Jim is sleeping with Agent Jill? What if Jim is getting a kickback from Agent Jill? I imagine you would want to do your research to find out if Agent Jill is as good as Cousin Jim claims.

    The question is…do you trust 1 person more than 20 people? “Trust” comes from unbiased opinion. If that opinion is from 1 person and could possibly be biased somehow, consumers will turn to our site to get additional opinions and do their research. If an agent has 20 glowing reviews of their service, the referral is further confirmed. If not, they may find another agent on the site who does.

    Third party credibility is the basis of success for the current referral process. Online review sites offer that same kind of “third party credibility” and have the potential to do it in massive numbers for every agent in the country.

    Honesty is a tough thing to judge face to face, let alone through a referral or an online profile with reviews. However, you can quickly tell if someone is dishonest through online reviews. Dishonest agents are reviewed on our site everyday and it leaves a scar on their profile for everyone to see. By understanding this fact, a consumer can find the honest agents by weeding out the dishonest agents. Nothing offline can do that for you. That’s the power of agent review sites.

    If you feel agent review sites aren’t worthwhile, then don’t use them. Just don’t expect any unhappy clients to agree with you.

  8. Mike Farmer says:

    In it’s resent state, I agree that industry “rating systems” will be fairly useless.

    However, if a company captured the consumer’s trust through a unique effort to establish itself as a viable relocation source, it could be very effective. It would have to be way more sophisticated than the current “rating systems”, offering comprehensive services mainly to consumers moving long distance to areas of which they have little knowledge.

    “Ratings” wouldn’t be the value offered, rather a “package” of information that’s interpretive and personalized, with agent recommendations being only a part of the “package”.

  9. Mike Farmer says:

    damn, I can’t type — PRESENT state

  10. Russell Shaw says:

    All opinions are “biased”. That is why they are called opinions. Do I trust one person more than twenty people? It depends totally on whose opinion I am getting. So the answer might be yes and it might be no – it really depends. And I never trust a mob.

    None of this is to even suggest that a company like yours can not be financially successful but to suggest that online consumer “ratings” of various professions will supplant the power of referrals is something I do not see happening.

    One of the primary problems is that very few consumers could validly comment on an agent’s “competence”. What they would be commenting or reviewing would be their own experience. How was it for them dealing with that agent? One of the most interesting things to observe with satisfaction feedback forms (yes, we absolutely use them in our office) is that the exact point where the typical seller or buyer “becomes dissatisfied” is when a home inspection issue doesn’t go their way. It is then that my Transaction Manager wasn’t “loyal” to them. She went from a very nice acceptable person to a bitch. Virtually all of the complaints I’ve received from the public regarding my listing agents and my seller consultant were over the price we told them their home would sell for – not any other issue. They didn’t like the price and as a result they didn’t like the person they spoke with.

    I personally often use various consumer review sites for any product I want to research – so please don’t think I am against them. But one of the main things I must see, in order to judge the quality of some reviews by consumers is the ability to click and see that person’s other reviews, as well.

  11. Russell is correct

    Dissatisfaction with an agent would come from things not in the agent’s control, like they just don’t like paying the agent’s commission -especially if they find out they could have used an another agent that would have charged them less or the house sold for less than they wanted.

    Contrarily, satisfaction with a so-so agent could come just because the consumer doesn’t know any better because the home sale was their first one.

    The problem with consumer reviews are most consumers deal with a real estate agent once or twice in their life to buy or sell a home so their opinions are not well rooted in experience the way a consumer’s opinion might be for say, restaurants or movies.

    In the Failed Promise of Re 2.0 I made the argument that User generated content was not suitable for real estate the way it is for other “social” media.

    Most people failed to notice or comment on my point 3 in my blog post the Failed Promise of RE 2.0 because they were too miffed by the first two points!l
    http://blog.homegain.com/failed-promise-Real-Estate-2-0

  12. David: I agree completely about the web creating opportunities to create relationships, especially via blogging. I also agree that Zillow is providing a good platform for such conversations. Such organic relationship building is very powerful.

    Regarding the efficacy of personal recommendations, my view is that they remain effective, not just in real estate but in many decisions. I haven’t studied this in detail, but I do note that the NAR surveys referenced above indicate that a majority of respondents were satisfied with their agent, which indicates they were satisfied with the personal recommendation. Now, many would argue that these surveys from NAR are just evidence of Mark Twain’s maxim about statistics, but the perseverance of personal referrals must say something about their efficacy.

    On a more theoretical note, I believe the personal recommendation is effective because it encompasses a great deal of complex information in a small package, and the personal nature of the recommendation allows the giver to be cognizant of both the needs of the person asking or receiving and the repercussions to their relationship from a failed recommendation, especially on such a large transaction as a house. Essentially, personal recommendations are the market in action.

    Incredible Agent: I look forward to seeing what you have coming.

    Russell: Again, I find your real world experience enlightening and appreciate your sharing that experience here.

    Mike and everyone: I recommend a book to you called Measuring and Managing Performance in Organizations. The basic premise of the book is that you get what you measure, but, in our fast moving world, what you measure likely is not what you need to get. Our world is so complex today that predicting the future by some pre-defined system measuring and monitoring performance is just as likely to motivate the wrong behavior instead of the best behavior. Similarly, participants will do what they need to do to “get to the top” and the question becomes whether what they need to do is actually the right things. The book mostly applies to companies and I’m not sure it applies as well to entire industries, but the concepts go to the heart of my challenge to ordered lists.

    This is why I think blogging and general QA platforms like Zillow offers that allow for relationship-building are closer to modeling the real-world of personal recommendations than the short-cut recommendation lists premised on a necessarily limited algorithm.

  13. Brian Larson says:

    I think we need a lot better research about what consumers actually do when selecting and working with an agent and when evaluating the results.

    Mike’s post cited the NAR survey:
    ‘“Forty-one percent of sellers found their agent as a result of a referral, while 23 percent used the agent in a previous home purchase. Similarly, 43 percent of buyers relied on referrals to find an agent, while 17 percent of repeat buyers used an agent from a previous transaction.” … These stats would need to have changed dramatically to avoid the conclusion that consumers don’t choose agents based from listing searches or from the Internet at all. Rather, as then NAR President Pat Coombs said, “Real estate is very much a face-to-face people business”.’

    I can’t agree that these stats would need to change to ‘avoid the conclusion that consumers don’t choose agents based from listing searches or from the Internet at all.’ The NAR survey does not obtain results that are nearly granular or controlled enough to give that result. Just one example: of the consumers who said they found their agents by referral, how many viewed the agent/broker’s web site and presence on the ‘net before deciding to act on the referral? Considering the high percentage of folks who either begin or conduct portions of their search on the web, I would imagine at least some do. You need to know the answer to know the impact that search and other sites on the web have for broker marketing.

    Market research is a difficult task to do well, and I have seen few if any published efforts to really understand consumer choices in this context in a really meaningful way. This kind of research costs big bucks (I know because we’ve looked into providing it) and those who have it done may not want to share the results for a whole host of reasons. But as we know from numerous sources, including recently Shermer’s The Mind of the Market (http://www.amazon.com/Mind-Market-Compassionate-Competitive-Evolutionary/dp/0805078320/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1205770807&sr=8-1), our intuitive understandings of how things work may have little relation to reality at all.

  14. Great points, Brian. More research definitely would be useful, but I don’t see a lot of people questioning the money being spent on on-line advertising based on the premise of leads from listings. Without a doubt, there is a “branding” value to listings on-line but the HAR.com and other examples tout “leads” from the listings and I do believe the NAR survey data and the inherent conflict from single-agent dual agency are relevant to the question of whether leads from listings are really happening. The ROI of listings on-line is very different if it is a branding exercise versus a lead generation exercise.

  15. Jessie B says:

    First off, this is a great thread with lots of good information. I think the buyer and seller approach this very differently.

    Sellers will use referrals or respond to offers as Russell mentions. I think this is true because the seller is actually paying for services.

    Buyers view the agents services as “free” and since it doesn’t cost them anything out of pocket, they will use whoever can statisfy their “immediate” need.

    This thought maybe supported by the 07- 08 CAR Internet v. Traditional Buyer report ( http://store.car.org/Default.aspx?tabid=53&PageType=1&Param1=407PU0IR2007 ) has very different statistics than the NAR Homebuyer report, highlights below..

    Q – How did you Find your Real Estate Agent? Important answers below…

    Internet
    = First time buyers – 82% | Repeat buyers – 33%

    For Sale Signs in Neighborhood
    = 7% First Time | 23% Repeat

    Referral from Friends, realtives, neighbors or others
    = 6% First Time | 8% Repeat

    When you combine the results from above with the #1 and #2 results which total 88% of why they selected the agent they worked with… “fastest / first to respond” & “seemed most responsive”…

    This paints a very different picture. I believe for “Buyers” see a listing on a site or on a sign and sends an inquiry to view the listing. The agent who responds first and sets up the face to face appointment, will usually end up working with that buyer. They are not thinking of selecting an Agent… they simply want to view the listing which is their immediate desire.

    I think the current iterations of the agent review sites will change to accomdate these natural differences between buyers and sellers.

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