Is Real Estate the Perfect Bus

The only constant in the world of business is change. Capitalism is brutally competitive and no company can ever rest easy and believe that it has conquered its market for good. There will always be opportunities and threats any business has to contend with, and ignoring these can lead to disaster in the long term.

Disruption is a major factor investors and companies have to consider. It is human nature to try and find a different way of accomplishing an aim which is both quicker and more efficient. That means the threat of disruption will be ever present in the world of business.

In many respects, this trend has gone into overdrive over the past 15 years, as a deluge of easy money has made it easier than ever before to start a new business and attract funding even if that business is unlikely to make a sustainable profit for the foreseeable future.

However, a handful of businesses and sectors seem to be immune to these disruptive factors. Chief among them is real estate.

A lack of disruption

Back in 2004, one shareholder at the Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) annual meeting asked
Warren Buffett (Trades, Portfolio) if he thought that getting involved in real estate services was a mistake considering the threat of disruption from online alternatives and other low-cost services.

The Oracle of Omaha stated that he didn’t believe these challenges would have a material impact on the sector:

“But, you know, when I think about the process of buying a home, and the degree of personal involvement involved in that, you know, the “for sale by owner.” They call them FSBOs in the business. I remember talking with my friend, Chuck Peterson about that 50 years ago, and FSBOs were with us then, and FSBOs are with us now. But my guess is that a very significant percentage of home transactions 30 years from now will be done through a pipeline, and through a distribution mechanism, or brokerage mechanism, like exists now. I do not see it changing dramatically, although there are people that are going to try and change it dramatically. So you’ve got competitors. But I love the idea of expanding Home Services.”

Buffett made this statement nearly 20 years ago, based on observations of more than 50 years of history at the time. He believed home transactions would still be completed via a broker 30 years from the date of the statement, and 20 years down the line, he still seems to be correct.

During the beginning of the pandemic, there was a spike in online-only sales, primarily because people could not get out to view the properties they wanted to buy. But this spike has since fallen back.

The holy grail

The bottom line for real estate is that people want to view the properties in person. That makes sense considering how expensive homes are, as well as the fact that buyers will either be living in the home or trying to rent it out for a profit. There’s just no way to accurately assess the pros and cons of a property without seeing it in person, as there are many things you would overlook just viewing the property through pictures online.

I do not think we can underestimate the power of human emotion and the impact it has on certain businesses. The real estate sales business is in large part driven by human emotion. There are emotional factors that go into a home’s valuation that can never be accounted for in a computer model; for example, a home may sell for more due to being in a desireable part of town or having a charming bay window in the kitchen, or it may have trouble finding a buyer because the bathroom needs to be renovated and few buyers want that hassle. nt.

That is why, despite the threats of disruption and other challenges, face-to-face real estate brokerage is still such a large business and is unlikely to go away any time soon.