Sean Park Portrait
Quote of The Day Title
I say profound things

The bond salesman and the estate agent: a modern-day parable.

For the last 15 years of my life, the biggest, most consistent and important professional challenge I have faced is convincing (usually well-paid) professional middlemen that the forward march of information and communication technologies is:

  • Inevitable. And as Andrew Carnegie once said, it’s a waste of time to criticize the inevitable. Get over it.
  • Sort of like electricity. Dangerous to those who are ignorant of it (don’t stick a fork in the power outlet); and extremely powerful and useful to those who understand it and/or can harness it.

Of course there are variations, and this is strictly anecdotal based on my very own proprietary inside-my-head number crunching, but typically the population in question looks something like:Middlemen Typology

If you are tasked with managing or catalyzing a paradigm shift, you don’t need to worry about the “Aging Rock Stars”, these people are either too old or too good to care about paradigm shifts: either they will adapt naturally or gracefully retire and most of them don’t mind either outcome (ie they can afford it.) They won’t support change per se, but neither will they actively resist it as they don’t suffer normal insecurities. Ignore them.

The second category you should ignore (“Toast – Clueless”) might come as a bit more of a surprise, especially as they typically make up approximately half the population; these are folks that are clearly doomed in the new world (in the sense that nothing they do today will be recognized as valuable, not that they can’t do anything else if/when reality dawns…) but are blissfully unaware of their impending irrelevancy. Like the rock stars, this group will not support change but you’ll be surprised how little they resist it – at least in ways that are potentially effective. I chalk this up to they fact that they don’t see the train coming so what is there to worry about? Resist what? Don’t get me wrong, on balance this population will be against change but there won’t be any depth to the resistance and so you can get sidetracked if you expend your energy here.

As a change-agent, most of your time, energy and resources needs to be concentrated on those who are doomed and realize it (“Toast – Know it”), they will fight change kicking and screaming; and those who accept the inevitability of change, (usually) get the potential upside and downside but are scared/unsure as to whether or not they will succeed at adapting. With the first group, you need a two step process: see if any can be brought into the second camp, for those that cannot (usually 80%) the only recourse is to try to isolate them and prevent them from doing harm: accept that you cannot please all the people all the time. The second group (“Good but scared”) is where you should spend most of your time and resources, showing them and helping them to understand and become comfortable operating in the new paradigm. Demystify. Be honest: “you know that thing you used to count as your best skill, well it’s useless now, BUT this thing you are very good at that wasn’t so important before well now it’s key…” Win them over.

The last group (“Looking to breakthrough”) are the adopters – they are your allies, but be careful don’t get too close: they see this (rightly) as an opportunity to become the new rock stars and don’t necessarily care about the overall market; if you align yourself too closely too them, you’ll scare off the 20-30% ‘swing vote’ that can make or break the success of your company’s/industry’s transition. Also you’re selling to the sold.

Which brings me (at last!) to my story. It’s about seeing the future of an industry by looking at the recent past of another. It’s about understanding that property markets in 2009 are like bond markets in 1989. And Estate Agents in 2009 bear a frightening resemblance to bond salesmen c. 1989. Both define themselves in terms of relationships and proprietary, local knowledge. Their ability to extract value from their chosen marketplace depends to a significant extent on exploiting an information asymmetry. Of course this is not all that they do, and certainly the best do much more and in fact rely on information arbitrage only tangentially, but nonetheless for a significant majority of practitioners, take away this asymmetry and you’ve taken away their raison-d’etre. (For those of you who didn’t have the good fortune of working on a fixed income trading floor in the 80s or 90s, but want to get a better feel for what I’m saying, both Liar’s Poker and Bombardiers are excellent reads.)

Often, perhaps even most of the time, the bond salesman of 1990 had an adversarial relationship with their clients; it was certainly a relationship based on power – the salesperson was seen as a necessary evil: they had access to the market, to prices, to information. If you wanted to participate in that market, well…there really wasn’t any alternative to paying an agent to look out for your interests, however expensive and/or poor the service. You could say this could have been true of any capital market but in the bond market it was especially acute: the information asymmetry is structurally orders of magnitude more significant than say for listed equity markets: even 20 years ago, the fixed income markets consisted of hundreds of thousands, even millions of individual securities. Clearly most had a core of consistent defining characteristics – currency, coupon, maturity – but beyond these their was a multitude of idiosyncratic variables that were very hard to keep track of but often crucial to determining value. The fine print mattered. And a professional bond salesman ostensibly knew how to navigate the fine print. And nobody – including the salespeople – had robust tools for managing, searching and analyzing this vast universe of securities – the banks and brokers were at best one-eyed men in the land of the blind.

And then the future mayor of New York invented the Bloomberg. And the folks in Seattle put a spreadsheet on every desktop. And a few crazy scientists in Switzerland invented the world-wide web. And before you knew it a bond trader could make markets in a 1000 securities instead of 100. And an investor could run an analytic screen on thousands, or tens of thousands of securities, without ever talking to a salesperson. And then electronic trading and bookbuilding came along and the customer could even trade without picking up the phone once. So did the salesman disappear? Well yes and no. The bond salesman of 1990 is no more: the job that essentially revolved around collecting, parsing and organizing scarce and opaque information in order to make a turn on a trade has been consigned to the dustbin: the most rudimentary use of 2009 technology by an intern would produce a service that is an order of magnitude better than the world’s best bond salesman could produce in 1990. But the value of a truly excellent salesperson today – even post crisis (perhaps especially post-crisis) – is higher than ever, as such a person can leverage the enormous power of the information gathering and analytic tools serving the market and synthesize what is relevant or valuable for each of her clients.

Hopefully you’ll have jumped ahead and understood that the property market bears a striking resemblance to the bond market. Take the UK: 26 million residential properties. Each one a bit different, but also large numbers that are relatively similar and can be benchmarked by size or postcode or property type (detached, etc.) It is abundantly clear that this market is more than ripe for disruption: most people now intuitively feel that the pricing structure is wrong and the business model is wrong. Information is no longer scarce and so people will increasingly resent being asked to pay for it. Think back if you can 15 years to 1994: you want to buy or sell your property, what is it worth? You can get a sense from the property ads in the papers but not much more. The implicit knowledge embedded in your local estate agent is worth something. Fast forward to 2009: using tools like Zoopla, anybody now has access to more powerful pricing tools than were available to the best agents 15 years ago. The same model doesn’t work anymore. (That in reality this model is still largely intact as I write is testimony more to the power of inertia and the fact that most significant business model changes happen relatively suddenly and violently rather than slowly and linearly than to the possibility this business is immune to change.)

So does the estate agent disappear? No of course not. Many individual estate agents will perish, but the best – including many new entrants to the profession – will not only survive but thrive. Indeed the individual or team of estate agents will become more important than the brand (ie Note to Private Equity firms: make your LPs happy, don’t buy anymore Estate Agencies…) The superstar agent of 2015 will enable his customers, embrace innovation: interesting property – how about a blog? and not compete on price discovery but embed these tools in an overall process that will create trust and a real value-driven relationship with their clients (who will be much more likely to become clients for life.) There is a fantastic opportunity to transform perceptions, to create a true profession. To become massively successful by adding real value to 99% of home buyers or sellers who today are at best ambivalent towards the agents and agencies they feel compelled to work with, and a worst are outright hostile to them.

If this sounds too easy, well it is but only because the informational substrate and transactional platforms now exist (or are relatively easy to invent.) That wasn’t the case 15 years ago, and probably not even 5 years ago. But somethings never change: listening Alex walk on eggshells as he articulates the benefits of Zoopla to estate agents is like deja vu all over again, as I remembered the first presentations of electronic trading and book-building to room full of frowning bond salesmen, arms crossed, minds closed. But a few of those men and women got it, and got it quickly. Ten years later they are now in charge. The lesson? Yes you need to be careful not to antagonize an important constituency in your marketplace. You may even go out of your way to be helpful to them. But also remember the pie chart above: don’t waste your energy on the irreconcilable, empower and co-opt your supporters they will be small in number but they exist and spend most of your time and energy ‘holding the hand’ of the strong minority who “get it” but are intimidated by the potential pace and/or scope of change.

It’s just a guess, but I suspect this approach – the empowered individual – is about to become more and more the rule rather than the exception at the top of the property brokerage world. I’m even wondering if it’s something I should just do myself… 😉

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  1. At 10:47 am on 14 Jul 09 cfarley said:

    It's still difficult to short real estate. And I'm sure that many bond investors in the 1990's were introduced to shorting fixed income (or CDS) by their salesmen. Could estate agents add value to their relationships by offering access to (for instance) the short markets no the Case-Shiller index?

  2. At 10:55 am on 14 Jul 09 parkparadigm said:

    Ah…now that is a whole other blog post. Actually probably a chapter and/or a business model. As you might guess I've got a number of ideas on how the whole housing finance market should be restructured but that will have to wait for another day (when I'm long capital and time, as opposed to short both!)

    The short answer however is yes, a trusted real estate broker would be someone who could look at my property asset(s) in the context of my overall balance sheet and financial structure; this would include risk management structuring as well (in particular managing equity and liquidity risk.)

  3. At 4:03 pm on 14 Jul 09 Tagerzole said:

    > And a few crazy scientists in Switzerland invented the world-wide web

    Please check your history facts. The worldwide web app was created by Tim Berners-Lee on a NeXT Computer [1] (yes NeXT as in Steve Jobs NeXT) at CERN in the U.K. (not Switzerland). It is somewhat appalling that you got your history wrong on this important point.


  4. At 5:25 pm on 14 Jul 09 parkparadigm said:

    I wasn't previously aware that there was a CERN in the UK, although I do understand that many high energy physicists around the world conduct work at CERN without necessarily being physically present at the centre. Also for what it is worth, I'm not sure that was the central point in the post and it was meant as a general light-hearted reference to TBL and his colleagues at CERN that invented the world-wide web. In any event, thank you for clarifying this as indeed I had always assumed that Mr Berners-Lee and his colleagues carried out their work in Switzerland (and given that both CERN and the first webserver – are/were in Switzerland I think characterizing my history as appalling is perhaps a tad harsh.) Thank you for reading and for expecting such a high standard.

  5. At 5:44 pm on 14 Jul 09 Dominic Sayers said:

    Tagerzole: I can't find any evidence that tbl was in the UK when he created the WorldWideWeb app. The link you gave does not say that he was. Have you got any evidence for this?

    The Wikipedia author thinks tbl was in Geneva at the time:

  6. At 8:45 pm on 14 Jul 09 tim said:

    at the risk of being a pedant …

    The TBL FAQ: refers to his office as being in France at the time in the discussion on Robert Cailliau's role.

    “Robert put in huge amounts of time and effort into the WWW project. He tried to get official funding for it from CERN. He looked for students who might be interested in working on it, and found several, some of whom, like Henrik Frystyk Nielsen and Ari Luotonen, became famous names in later WWW history. He would organize the details with management, and I would technically supervise, though our offices were several minutes walk away across the site. (If CERN had not been an international site, mine would have been on French soil and his on Swiss, so we would have had to show our passports each time!) “

  7. At 11:00 pm on 14 Jul 09 Dominic Sayers said:

    It's looking like Park Paradigm 1 Tagerzole 0

    Jury's still out on the “crazy” bit.

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  9. At 5:08 pm on 27 Jan 10 ModernEstateAgent said:


    Very well written commentary on this. I particularly like: “not compete on price discovery but embed these tools in an overall process that will create trust and a real value-driven relationship with their clients (who will be much more likely to become clients for life.)”

    Do you fancy a guest slot writing 300-600 words on that topic for the Modern Estate Agent blog?

    Martin (@PropertyADD)

  10. At 11:58 am on 08 Feb 10 homebuyers said:

    Estate assets today are not so attractive to homebuyers as they use to be.

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