15: Evolution vs. Disruption

Welcome to the Purpose Driven Real Estate Podcast. This is where passion meets purpose in an ever changing real estate market. I'm your host, Steve Valentine, former real estate agent turned real estate entrepreneur, speaker and guide to all things real estate. And this is my co host, Paige Tons, former D1 college athlete turned real estate adultrepreneur. Whether you work in the industry or you are a consumer of real estate, with each episode we intend to raise the bar in our industry and show you the purpose behind every piece of real estate in your life. What's up, everybody? Hey, everybody, it's Steve Valentine, your host of the Purpose Driven Real Estate podcast. And my co host, Paige Tons is here. What was that? You sound like a broken goat.

Stop being so mean.

Okay, so today, what are we discussing today? I'm probably gonna go a little rantish, but I'll at least let Paige talk for five seconds.

Yeah, so here's my tidbit, my five seconds of glory over here. But Steve would like to talk about evolution verse disruption in today's market.

So what do you think about evolution versus disruption? Give me an example what you think about it. You've heard it, You've heard me talk about it.

I think the main point. I could summarize it in like a minute.

Oh, go ahead. Let's give you 60 seconds, let you talk more.

The main thing that I get from it is just that I just feel like the real estate market and the people within it, the professionals, agents, real estate agents, realtors, whatever you want to call them, are mainly just complaining about the lost opportunity instead of looking at the opportunity as they have. So they're just looking at it negatively rather than positively.

So do you think that comes out of a mindset of scarcity versus abundance?

Yeah.

Do you think it's a scared thing, like, you're gonna take my job, you're gonna take what I'm doing, you're gonna take income away from me, Right?

Okay, Definitely.

Okay. So, you know, it's one of those things where, you know, the word disruption or disruptor is being thrown around, you know, all over the place right now. It's being tossed around like a chopped salad. And it's. It's almost to the point to where it's annoying. I mean, people are, you know, naming things after it, and it's. You know, a good friend of mine has a podcast that has the word disruptor in it. And the people that he's interviewing, they're great people. I don't know that they're disruptors in the industry. I Think that they've evolved and they've gone with a niche that they found and they're doing amazing things. And, you know, they're an evolution agent when it comes down to doing great things. They're not scared of, you know, the tech companies and the discount brokerages and all those things because they found other opportunities in the market to create income and to add value to their clients. And that's not disruption, that's evolution. You know, there's a big difference between the two words when it comes down to, you know, a disruption comes from this. And actually we're gonna walk down and do a little history lesson here. So do you know where the actual. And I think this is where people are having scarcity is that everybody is still in our industry focused on the number six, right? The number six, which is 6%, is everybody that is a realtor or in the real estate profession walks around thinking that you have a 6% price tag on your head and that's the value of the transaction. And I think that we're in a business that's evolving into something different where whatever you're charging, whatever solution you're providing, there's going to be a dollar volume or a dollar value behind it that not necessarily a percentage behind it. So again, do you know where the 6% came from?

I do not.

Okay, so it's an interesting story because I've looked it up and walked through it, and the 6% actually came from a. What was it? The evolution, the real estate evolution. Slowly looking back at history, the 6% commission, it started in the 1940s, and it was actually like a. Almost steering or price blocking where they. And that's not the word for it. I can't even think of the term for it when I read it. But basically what it was was they just locked it in. And so the country was dealing with the wars and all the other things going on at the 1940s. So nobody's paying attention to what somebody was charging. And they basically just price blocked it. Like this is what you're going to pay no matter what. It didn't matter who was doing it. That was the price it was going.

To pay, how hard it was or how easy it was.

Right. It didn't how much price range paperwork or. And then the 50s and 60s. So, you know, I'm sorry, it was called price fixing. That's what the term I was working for. So they fixed the price in the 40s, and then in the 50s and 60s there was some court cases and some other Things that came out and they went in and it was now a suggested compensation for to sell your house was 6%. So it wasn't price fixed. It was now a suggested. So now the general public was basically. It was suggested price. The 70s, there were several lawsuits that arose and it was no longer a suggested. And it was something that the boards look or it wasn't looked at by the boards. And so it was just kind of stuck in the public's head that it was a standard charge because they've already gone through 30 years of it being 6%, even though there was things in the background that said otherwise. Now it just become the perception. Right, right.

Or the norm.

Here's where I believe, being third generation real estate professional, here's what I think disruptions are. Disruptions are anything that causes people to be completely scared, frustrated with the market, and cause the general public to stop buying and selling. So here's some major disruptions in history that I don't believe have anything to do with what people perceive as disruptions now.

So what are disruptions now or what are the perceived disruptions?

The perceived disruptions from everybody are the. I think. I think Josiah's over there looking at me like you're getting away from the mic, dude. All right, I got you, Josiah. The. The perceived disruptions were in 2014, Open Door came out. Okay. Open Door is a company that big hedge fund, lots of money, and they will buy a house off market. Now them offer pad they have, and same thing with Zillow, they all have a convenience fee that's built in. So they're giving you a certain price, minus repairs, minus the convenience fee to buy your house and make it simple. Now that's supposedly a disruption. Now the reality is, I think the last time I checked, you know, this year those three companies might make up for about. Wow, how's your elbow feel on that one? Might make up for about 10 to 15% of the actual market now. So they're certainly making market share without doubt. But what people don't see is that they have to stay in their box. Okay. They're publicly traded. There's all kinds of things that go with the investment side of that. So there's a box that everything has to function in. Right? No big deal. Those are the perceived things. The funny thing about that is that what nobody's looked at is that we buy ugly houses, has been around for like 25 years as a national franchise, and they've been doing this crap forever. And that wasn't a disruption.

Little caveman guy.

Yeah, a little caveman dude. They kind of pigeonholed themselves by we buy ugly houses. So now if you have a pretty house, well, you don't call we buy ugly houses. So they kind of, you know. But those are the perceived disruptions. The perceived disruptions are, you know, the wholesalers, the people that are buying things. But here's what happens. Those people that are not. It goes back to the book who Moved My Cheese? Okay? The real estate business has been done the same way for the last 50 years. Okay. Even the commission rate hasn't really evolved. It's kind of evolved and digressed. So, you know, you can sell your home between 4% and 8%, depending on who's buying it, what you're giving up, whatever the case may be.

Right.

And so you fast forward to now, and I believe the consumer somewhat wants the Amazon experience of selling their home. Now, the consumer still wants a relationship with a real estate professional in order to represent them on the buy side and help them with those pieces and even help them navigate through. You know, sometimes we have clients like, hey, Zillow is willing to pay me this, or offer pads willing to pay me this. Is there anything you can do for this? Well, we might look at it, we might have a better solution that might get them to where they want to be because we can operate outside the box.

Right.

And so that's where the issue comes in with the limited mindset of, oh, well, these people are disrupting our business. They're not. Somebody just had a better idea than the rest of us did and they executed on it with a big pile of cash.

They were seeing opportunity rather than complaining about it.

Correct. And they've. They've gone in and they've involved tech and they evolve, ease. And, you know, unfortunately, our own industry has caused some of its own problem. It's like, you know, how many times have we talked to people recently? You know, we sell a lot of homes in our operation because the amount of homes that we acquire from people and renovate, and we're going through what we call bins or hell right now, which is, you know, buyer inspection notice where the agents are. You know, the buyer's representation is sending over a. Not educating their clients on what to expect during this process. You know, we'll get into that sometime different where, you know, the inspection is meant to just look over the house. It's not meant for the seller to correct everything that's on that report. It's a used house, like buying a used car. Yeah, but that right There has caused so much stress. Like that is the most stressful situation and piece of negotiation that a seller can go through. Even for me as the seller. You know, I was on the phone with Erica today and it's annoying because people are not educated.

She's not annoying.

No, not Erica. Just the agents and what they're going through and what they're allowing their clients to do because they're not educating their clients in that aspect of it. And so now let's really talk about true.

Now tell us about the true disruptions.

True disruption, True disruptions. Now again, third generation. So my dad was in the business for 40 years, my grandmother in the business for 50 years. So they lived through a lot of these disruptions. I lived through the very last one, you know, in the business. So 1975 to 1983, when we were having oil crisis, the mortgage rates on average were 14% during that time. Okay. People bitch about 5% interest rates right now. And in the 70s they were 14%. At one point in time, I think it was 1983 all time high of 17.9%. Okay. My grandmother and my dad and my mom, they.

I don't think anyone would be able to buy anything.

No, you can't start thinking about what that looked like now. It might be different with the pricing of home back then you couldn't buy anything at 18% right now and survive. I mean you could made good income and that was your last resort. But let's face it, that'd be ridiculous. That's a disruption.

Right.

That's a huge like if right now, all of a sudden interest rates spike to 15% that we wouldn't be, we'd have no buyers. I'd be stuck with a boatload of inventory. That would turn into rentals. Now your rental market would increase. Right. Because all of a sudden you have.

No buyers turn into like a big rental.

Yep. But then rents would go down because now all of a sudden you have an increase in rentals causing the rental price to go down because you have so many of so supply and demand. So what happens in this though, the 14 to 18% here's a disruption to 90% of the industry. For me, living with my dad and understanding what he went through, my dad lived through this time. This is when you start doing creative financing. This is when you start doing wraparound mortgages and you start doing seller carries and you start figuring out how to move things around in order to create.

Having the new mortgage.

Yep. The very best value. And a lot of times too what people don't see, which I love, is, you know, the fha. I don't believe va, but FHA conventional, those loans depending can be assumed by somebody else if they qualify. So if they call the bank and say, we want to assume this mortgage, you can assume it based on you qualifying. So if I had a 5% mortgage and you wanted to buy my house, you could assume my mortgage, but you're going to have to pay the difference in cash. That's where the difference is. So there's a lot of different creative things that a lot of people have never lived through and never experienced. And that's again, that's where we provide a huge value when it comes down to how do we get from point A to point B if we have kind of an awkward situation, Right? And again, I don't find, you know, the big three that I call them, you know, offerpad, Open Door and Zillow. They're a zoo. That's what they are. They're a zoo. Offerpad, Open Door and Zillow. So the zoo doesn't impact us because they might be able to provide more money than I can or that we can in our company, but I can provide something that might be different when it comes down to something needed. Somebody needed to rent their house back for six months. It needs more repairs. It's outside the zoo box when it comes down to it. The zoo box, I'm totally keeping that. I'm trademarking that crap. Okay, so let's fast forward 1983, things start to get better. Rates go down to probably about 8%. Okay, here we go. 1990s, were you born yet? 1992, you were the cause of this then 1990s savings and loan crisis. Okay, so I have some of this, not all dialed in, but there's actually, there's a link to it if you guys want to go read more in the show notes. So there was 30, approximately 3,300 savings and loans at the time, which would be kind of equivalent to like a credit union to these days, savings and loans. Out of those, nearly 3,533% of them went belly up with it. Cost the taxpayers more than $132 billion in that time. One particular savings and loan that was actually here, some people that are listening to this, they're in Phoenix. Remember the whole Michael Keating debacle? His savings and loan was 100, hundred billion $. Yeah, $100 billion in the negative.

So he owed all that money.

So what happened was, and I'm sorry, it's 100 million, not 100 billion. $100 million in the negative. So what was happening is the government was. The Federal Reserve rate was say at 10%. The savings and loan was loaning money out at like 9%. So they had money coming in, they were loaning it out at nine, but then they were putting it in different risky hedge funds and things. And when crap hit the fan, all of a sudden the government didn't see, well, they're not liquid, they're negative. So now you have all these problems again. It cost taxpayers like $132 billion. And that's when the RTC stepped in. And then they had to start going through and selling homes. And I remember, in fact, I remember being a kid in the 90s and going out with my dad and doing like these packages of HUD homes, like these nasty homes that had basically been foreclosed on. And it was terrible. But there was just this big deal. I'm trying to remember. I want to say his name was Brian McKay. I don't remember. I just remember when I was a kid going to clean these things out and going, what the heck happened to this stuff? So that was a huge disruption. You know, when it came down to things being foreclosed on, money lost, huge disruptor in the market definitely caused decrease in value. And a lot of people lost their homes and a lot of just failed banking. When it came down to the savings and loan crisis, you think we would have learned a little bit with the savings and loan crisis when it came to the 2005, some prime crap. You know, the other disruptors that cause temporary disruption or slowing down because of fear is any war that we've had. You know, you go back to Desert storm in the 90s and then you go to 9, 11. All of these caused interest rate spikes, they caused fear, they caused slowdown. In fact, I remember 9, 11 that afternoon I had to go and do a walkthrough with a client that was closing that day. Now, not a lot of panic from him, but we also had a lot of people that were on the verge of buying that just decided to back off because they didn't know the uncertainty of what was going to happen with the United States. Like, you know, we just had an attack on foreign soil or on home soil and soil, you know, on our homeland. The homeland. And, you know, it was just one of those pieces that it caused fear and panic. So people backed off. So it took probably six to eight months to kind of recover. But then we went into, you know, the wars For a while over there and being deployed and it finally got better and it was okay, but it still caused some disruption there. But it wasn't a permanent disruption. The biggest disruption to the United States when it came down to it was, you know, we blame it on the subprime. And, you know, the subprime led to greed, which led to the chaos in 2008. So you want to talk about disruption, go from 2006. The height of the market was sometime between 2006, end of 2006, 2007, and being in a time like we are right now, of multiple offers in that 200,000 price range, fighting for things, going through that process to it all of a sudden be flipped on its lid overnight. No more contracts. You're like, what is going on? The lending stopped. Banks were being shut down. And then you get in 2008, this is disruption. I think the numbers that was going on at the time as I think the banks were foreclosing on nearly 200,000 homes a day during 2008. So at one point in time, you know, we were being heavily involved in REOs. We were getting some weeks, we were getting upwards of 100 to 150 assignments a week. So new properties that have been foreclosed on, now that we're just one broker. So. And I think at the height of the market, there was 50 or 60,000 homes on the market. Right now, I think we're sitting at around 20,000 total. And most of these were foreclosures, Most of these were vacant, abandoned homes. And all these banks, where'd all these people go? Went to rentals. They. Yeah, I mean, it's crazy to really think about, like what happened? Where'd everybody go? What did it look like? I mean, I know when we got foreclosed on, we went to a rental. And then I know that a year after we had moved out, about eight months into that rental, but a year after that, that rental got foreclosed on. You know, and that was always a big deal then was, you know, the, the landlords were keeping rents and then letting houses foreclosed on. And then the renters had to go find somewhere else to go. So it was tough then. But you talk about that many homes on the market and causing prices to decrease rapidly overnight. I mean, we were at a low in 2008, 2009, that was probably 75% below where we had sold stuff two years prior. That's a disruption. That's a huge disruption. So think about this. You take a realtor and their Average Commission on a $200,000 house is about six grand. To. All of a sudden, when we were doing REOs in 2008, we probably had. At any given time, probably half of our assets were under $50,000. We were getting paid $1,000 per house. That's a huge decrease in income. When you start looking at. Now, it was in volume when it came down to.

And then all the real estate schools emptied.

Right. Well, I mean, that. That was it. I mean, that's what happens. You get all these people that flood into the real estate market. You know, you talk about disruptions. Well, how about, you know, the 80,000 licenses we have here in Arizona that a bunch of people have jumped back into the business because it's good.

Mm.

That's a disruption. You think about all the people out there that doing onesie and twosie transactions that are representing people that really have no experience, but they're going out with their friends and family because it's easy, and they think it's easy. You know, that's. That's another disruption. But, you know, the foreclosures was. Was a disaster. And that was probably our biggest disruption ever in our market that I can see, you know, that we live through. You know, then you see the pattern, you know, the major shift, you know, and just the panic, you know, that causes disruption. You know, 2008, 2009, that caused a lot of disruption. But you start looking at, well, how did we shift? What were we doing?

I mean, I was gonna say, what's the solution then here?

Well, I mean, the solution is to evolve, you know, your. You have to compete. And I don't even think you have to compete with the zoo, as I call it. I just think you have to start giving more value to your clients. They need a perceived value. If you don't have perceived value, they'll go sell your house to the zoo. Or they'll go find a discounted broker like Homey or Purple Bricks, I think, is a new one. There's a bunch of different ones. And it's not that you. Hey, look, if you don't have a relationship with somebody, they're gonna go call one of those people they heard on the radio, because if they don't have a relationship with you, they don't have a relationship with them. They're just looking for somebody to do something cheaper. But if I have. Or we have a perceived value with our clients and the consumer that, hey, we can creatively move this stuff around, and they're paying for the value that they get in. That advice, not necessarily for selling their home, right? You know, a monkey can sell a.

House, a consultation or, you know, someone.

It's. It goes back to this. You. You look at when you go to. You get in a car accident or you're gonna get plastic surgery or whatever. You're not gonna go to a discount plastic surgeon that you found for 9.99 on the back of a magazine that's gonna go cut you up. You're gonna typically go look for a referral or somebody to help you. And that's what's amazing in this market, is that people are gonna let their greatest asset go without getting advice from somebody that has experience, that can add value. But we first have to add value. So you start looking, how do we add value? How do. As real estate professionals, how do we add value to our consumers? And it's by knowing what their options are. Their option isn't always putting it on the market. There may be a spin. And the other thing is that, look, as a real estate professional going, hey, I'm not really sure what to do with this, but maybe I could call Steve Valentine and maybe he's got a creative solution to work with me on this.

Right?

You know, that's the cool thing was we've created some cool relationships with people that they know they can call and go, hey, I've got this weird situation. What do you think? And I'm always willing to go like, dude, bring me the crazy.

Let's see if you can figure this one out.

I got the crazy. Bring it to me. You know, let's. Let's work. Work it out and see if it's beneficial to the seller, the buyer, myself and the other agent to where we work together and make the dream come true, which is everybody wins at the end of the day, rather than everybody squabbling over something. And again, you get paid for the solution that's provided, and you can feel good about it, right? So we've kind of talked about some of the different things, the disruptions and what people look at. And you start looking at again, the book who Moved My Cheese? And I think that's where a lot of people are right now. There wasn't a. If you read that book or know anything about that book, you have four characters, and you have him and haw and sniff and scurry, and they're little people and mice that are in a maze, and they live in a house, and they go out every morning to go to the cheese Room. And I think the first one was like cheese room 10 or something like that. And there's this big mountain of cheese. Well, they would all run there in the beginning, and then they would eat their cheese.

Wasn't it a maze?

Yeah, it's a maze. That's what I said. They lived in a house in a maze.

You said they start in a room, so. Sorry.

Okay.

I was just making sure you explained it correctly.

Okay, so they live in a maze, and they would run to once they finally found the cheese room. So they go to the cheese room.

Got it.

They'd eat cheese, and then they run back. Well, eventually, him and Haw started to get complacent, which I think we're in that piece of the market right now where people are starting to become complacent, and they become complacent. So then now they're walking to the cheese room, but Sniff and Scurry are still running there, checking it out, evaluating what's going on, seeing the evolution. The evolution is the fact that the cheese is starting to dwindle. So they started to look for more cheese. As it started to dwindle, him and ha. They kept hanging out, getting fat and happy, not realizing the cheese was diminishing until they got there the last time, realized, wait, where'd all the cheese go? Mm, now what do we do? And I think it's. I think it's him. I think he was throwing a hissy fit, you know, being a whiny little bitch, going, hey, you know, where's my cheese? And, I mean, if you read the book, you see some of the cartoons on YouTube, it's pretty funny. And, you know, he's whining, and hall wants to go out and find more. She's like, dude, let's just go. Let's go look. But I think you have a part of our industry that's standing there like him going, well, I had all this business, and now the zoo has taken the opportunity, and now they're standing there having hissy fit. Rather than looking at all the opportunities going, hey, I still have a whole maze full of opportunities, Right?

Let's take advantage of them.

I just need to take advantage of them. I need to go out and look for something different. And so that's one of the reasons, you know, that. That I look at, you know, think about the changes in. In the world right now. You know, I posted a photo a couple weeks ago of a store closing on Toys R Us, Babies R Us, and it was interesting just to think about why didn't they move their cheese the minute Amazon came in 10 years ago, 12 years ago, and started. Nobody saw the writing on the wall going, hey, we need to really focus on how to take our brick and mortar to an online piece or dumb down the stores into smaller and not carry as much in store that you can have shipped or whatever the case may be. So now all of a sudden that company has gone completely out of business. You know, they're, they're done.

It's because the moms don't want to tote their kids around in Toys R Us.

Who wants to go shopping? But Walmart did the same thing. I was reading something the other day about the GDP of Walmart or the GDP comparison to Walmart as a corporation. Walmart's equivalent of $427 billion is their value right now. And they actually would be the 28th largest country GDP wise in the overall scheme of things right now. Yeah. So you start putting that into perspective. It took Walmart 10 years to go to an online system to send out stuff free. Nobody likes to go to Walmart. Like, let's just. Unless you want to go there for fun. Like you've had a couple cocktails, you want to go look at what's going.

On in Walmart, turn into the new fries and have a bar at Walmart.

Right. That would be ugly. There would be a whole lot of crap going on in there. So I just think that the consumer. So we go back to Amazon. What did Amazon do? They made it consumer friendly in order to take the pain out of shopping. So it's the buying timepiece. I sat there yesterday going, okay, I needed to buy some helmets and some other stuff for our side by sides and the kids. Or batteries for your rechargeable AA batteries that Paige doesn't know anything about because she's only 26. So we go through and you look at the consumer experience. Now I can lay in bed and order all I need for whatever.

Or maybe not lay in bed, but you know what I mean, you're getting work done while you wait for your stuff to work.

I didn't have to get up, drive to Walmart to buy helmets for my kids. I ordered them. They're there the next day. I just bought myself an hour's worth of time. So same thing with the consumer. Hey, I don't have to make repairs to my house. I don't have to put it on the market. Somebody doesn't have to walk through it. I don't have to listen to people complain about the outlets not working or a GFCI not being up to code.

Right.

They alleviate all the pain that they've had in the past and it makes it simple. And that's what the consumer wants. They want this to be simple. And we've made it so complicated. And I think as real estate agents, I think we're still making it complicated, more complicated than needs to be because you know, too many people are still getting up in the morning and putting their cape on trying to save the consumer rather than trying to figure out how we all get along and work together to make it a win win.

For everybody puffing their chest out.

And so, you know, this is kind of where I go to, is that I created a course called Limitless Project intentionally to look at some of these evolutions and how you can be in the midst and add more value to your clients, both in helping them build wealth, helping them solve the problem, and adding value to not only themselves but the agents to look at. Hey, not seeing all the opportunities that are available right now, which is I could invest, I could buy their home as a rental property. I could buy their home as a potential flip. I could, you know, I can know what, what this looks like for a Steve Valentine and call Steve and go, hey, I got a client's got a really bad house. Would you buy this and still get paid for the deal knowing that you're solving the problem solving and you're taking away the pain and making it easy for them. And that's why I created that project was to go through and coach people through the process of how did we do what we do? I think to date, you know, the company, including what Wendy does on the renovation side, I think we're almost 450 homes deep on the renovations is what we've renovated in the last three years. And what's cool about that is that that's 450 solutions we provided because we understood the opportunities that lied underneath.

Right.

You know, and that's, that's what helped us create that. It's what's helped us create our income, our inventory and it's also repurposed lots of communities and created lots of value. And I just think that that's the direction creating an impact. Yeah, so we're having an impact on ton of people in the Limitless Project. So you can go to stevedvalentine.com and you can sign up for subscribe to Limitless Project and then we'll get you some information. There's new courses starting all the time and it's a group coaching session just kind of how to implement this type of thinking into your business. And again, we want you to have a limitless mindset. Not the mindset of our business being disrupted, our jobs are being disrupted.

Limitless, not a limited.

Right, right, exactly. And I just. I believe that that's where people are at right now, is that they are limiting their thinking and they're so worried about what else is going on rather than finding their way to contribute to the industry and provide value to their clients. I'm out. That's all. I got my rant today.

I didn't even have to ask the question about where to go.

I know, right? I got all that in. Yeah. All right, high five. We're out of here. See ya. Bye. Thank you for listening today. If you loved this episode, please share it with somebody you think would also love it or be inspired by it. With. Without you guys, we can't create more purpose. Please leave us a review and a truthful comment or thought. And until next time, this is Purpose Driven Real Estate.