Sitzer-Burnett Decimates Prop Tech Industry (Is NAR To Blame?)
You can’t go anywhere in the real estate world without hearing about the latest NAR settlement to the Sitzer-Burnett lawsuit.
Buyer agents, selling Realtors® team leaders, and company owners are all scrambling to make sense of an uncertain new world (a world that has not even settled yet). It’s complete Chaos!
It’s a terrifying time for many Realtors® and company owners to be in real estate. We’re talking about all new processes to adopt to continue to earn a living. Forced change is hard enough to deal with, but there is also the continued unknown of “what else will happen” which adds to the feelings of uncertainty. It’s enough to paralyze even the most optimistic real estate professional.
NAR... MLS’s… Large brokerages….. Give me your money or give me your life!
Uncertainty and change are the feelings in the trenches. They are being felt by every agent, team leader, and broker. For the largest brokerages ($2Bn+ in annual sales, MLS’s and even the almighty NAR (National Association Of Realtors®) there is an even more imminent (and more tangible) threat to their existence. They have to pay to settle these lawsuits! They have to pay MILLIONS of dollars!
“I am sorry but we have to put this bid on hold. We’re in the $2Bn+ category and have to write a cheque for 10 Million Dollars. All projects and spending are suspended until further notice. When that is, I don’t know.”
This is a real message that I received from a very large potential client. And it’s the kind of message myself and my team have heard over and over again in the last 6 months.
They tell us:
- It’s not about you, (we love you guys)
- It’s not about your product (it’s best in class)
- It’s not even your pricing (we “wanted” to move forward)
- We just can’t do it as we’re worried about how we’re going to survive
As a vendor, partner (and often as a friend) of the owners of these companies it’s really hard to see them going through this. I can only imagine how much pressure they are under, and how much anxiety they feel not knowing what their future looks like or if the business they have worked their whole lives can survive this.
The downstream effect of Sitzer Burnett on prop-tech
If you’re a prop-tech company… what happens when your largest customers can no longer afford to invest in new projects or technology? Or even if they are simply too afraid to do so because there is so much uncertainty in their future?
When your pipeline dries up and you no longer have any prospects driving you forward, motivating you to keep going even when times are tough.
How can a prop-tech company keep going?
Sadly, for many prop-tech companies, especially those that are start-ups or have not reached scale, they can’t keep going. They will have to close their doors forever.
Some will recognize this early and voluntarily accept defeat (perhaps selling for pennies on the dollar to larger tech aggregators), while others tragically believe so much in their product and their teams, that they will go down fighting…. Which means bankruptcy, and an even more devastating outcome for the founder.
The loss of prop-tech jobs that will come from this tragedy will be in the 10’s of thousands.
The loss of innovation? Will be immeasurable.
As the founder of a prop-tech company (the longest-standing CEO of all large prop-tech companies), this makes me truly sad. Innovation is the #1 core value of our company and one of the things I have loved most about my 20+ years as CEO at REW is spending time with other prop-tech founders.
Seeing their passion and drive to innovate. Tracking their progress through the journey of product/market fit. Celebrating their success when they finally break through. Building so many friendships and learning so much along the way.
There will be a lot less of that now. And for quite some time I fear.
The next few years for prop-tech: Consolidation
What happens to customers when their vendors go under? If they are still around (the customer I mean) which in the case of a brokerage is not guaranteed either… they move to a surviving vendor. This is customer consolidation.
What happens to innovative tech when vendors go under? It dies!
There are two paths. Neither allows true innovation to survive.
The first: The business (and its awesome tech) simply ceases to exist. The company is bankrupt. The tech is gone.
The second: The company is absorbed by aggregators. In the prop tech world, these are companies like Constellation, Lone Wolf, Zillow, or several other VC-backed companies. I'm reminded of this scene from the movie Demolition Man:
In my experience, I have never seen innovation continue in the same way for a prop-tech company or solution once it is acquired by an aggregator. Their models are all about efficiency and shareholder profit. The founders of acquired companies have shared with me the environment is not conducive to innovation. The top talent always leaves once their requisite transition period is done. In effect, the innovation that was beloved in that company is dead.
The bottom line… a lot less choice for Realtors® and brokerages. And even less innovation.
The Dark Age of prop-tech is coming.