Select Page

The Innovator’s Dilemma and the future of the real estate brokerage

Share this article:

The below article is based on my conversation with Trevor Koot, CEO of the British Columbia Real Estate Association, entrepreneur and speaker. It was also created with the assistance of ChatGPT.


The real estate brokerage industry has long underpinned the process of buying and selling homes, with traditional brokerages serving as intermediaries between buyers and sellers of properties. However, the rise of new technologies such as artificial intelligence (AI) is threatening to disrupt this industry by changing the role of real estate agents and displacing real estate brokerages altogether. As such, we are all now facing the classic “Innovator’s Dilemma” as we try to adapt—or fail to adapt—to these new changes.

The Innovator’s Dilemma, a concept introduced by Clayton Christensen in his seminal book of the same name, refers to the challenge faced by successful companies so focused on their existing products and processes that they fail to recognize and respond to disruptive innovations that are emerging in their industry. 


The tension between sustaining innovation and disruptive innovation


In the case of brokerages, the disruption is being driven by advances in AI that could completely automate the compliance and documentation role of the brokerage. With respect to real estate agents, on the other hand, technologies are transforming the way properties are marketed, valued, searched for, and bought and sold.

The heart of the Innovator’s Dilemma is the tension between sustaining innovation and disruptive innovation. 


Sustaining innovation


Sustaining innovation is continually improving existing products and processes to maintain market share and profitability. This is the focus of most real estate agents today as they strive to give better service to their clients, offer more for every commission dollar spent and leverage social media to boost perceived value. 

Brokerages use technology to streamline processes and, similar to the agent’s efforts to attract clients, offer more services to agents for a more favourable commission split.  


Disruptive innovation


Disruptive innovation, on the other hand, involves introducing new products or services that are initially inferior to existing offerings but eventually surpass them in terms of performance and cost. 

This is where AI and other technologies come into play, as they have the potential to disrupt traditional real estate brokerages by providing more efficient and effective ways to market properties, match buyers with sellers, and complete transactions. 

An enterprising real estate agent may also leverage technology to assist in creating content, develop marketing campaigns for both themselves and the homes they are trying to sell and to help price a home. 

They may even use AI to boost their own productivity by using the technology to conduct time-consuming compliance and administrative tasks in the industry. 

For example, as Trevor Koot, CEO of the British Columbia Real Estate Association (BCREA), stated during our conversation, “ChatGPT could potentially write agreements of purchase and sale, speeding up the transaction process and reducing the need for manual paperwork.”


AI-powered brokerages vs. the traditional brokerage


One real-time example of innovation in the real estate brokerage space is the emergence of alternative brokerages, which use AI and other technologies to offer a more streamlined and cost-effective way to buy and sell properties. 

For example, AI-powered brokerages can offer a range of services that traditional brokers cannot, such as quickly produced AI-driven, highly personalized property recommendations, virtual property tours, and automated property valuations. 

These technologies can provide a more seamless, faster, and more cost-effective service for buyers and sellers, disrupting the traditional value offered by a real estate agent. These marketplaces also allow buyers and sellers a wealth of data and tools to help buyers and sellers make informed decisions. 

In fact, these technologies are so promising that Amazon is currently shoring up resources to enter this marketplace. A threat, Koot asserts, will be the real downfall of the industry as we know it.

Given that such marketplaces are in their infancy, however, the technologies we often hear about and such innovative companies have yet to fully displace the role of the real estate agent; nonetheless, they have changed the value of real estate brokerages as the ultimate source of leads for agents and will also change what consumers, agents and brokerages expect from real estate associations. This is where the Innovator’s Dilemma comes into play, as traditional real estate broker/owners and agents face the challenge of adapting to this new reality.


“If we continue to promote protectionism over innovation, we leave room for non-industry players to control the future of our industry.”

-Trevor Koot CEO, BCREA


Koot, a successful business leader and industry heavyweight, offers guidance as we face changes at neck-breaking speeds: “The first step in addressing the Innovator’s Dilemma is to recognize the threat of disruptive innovation and to be proactive in exploring new technologies and business models. 

He goes on, “Real estate brokers, agents and associations need to be open to the idea of AI and other technologies, and they need to invest in these areas to stay ahead of the competition. If we continue to promote protectionism over innovation, we leave room for non-industry players to control the future of our industry. [This means] we fail.”.

However, as Koot deftly points out, this is easier said than done, as the real estate industry as a whole faces a number of challenges in adapting to new technologies. 


The fear of cannibalization


One of the biggest challenges is the fear of cannibalization, as brokers, agents, and association leaders may be hesitant to invest in technologies that could replace their existing services and offerings. 

They may also be resistant to change as the technology is still nascent, and new business models have yet to be proven. What is more, to be leaders in the industry, says Koot, “We must unlearn existing processes and adapt to newer technologies, despite there being no guarantee that such changes and adoption will lead to success.” 

To overcome these challenges, as Koot asserts, the industry needs to be willing to disrupt its own business models and embrace new technologies and ways of doing business that could potentially replace existing offerings. This means investing in AI and other technologies, experimenting with new solutions, and being willing to take risks. 

If we don’t, Koot predicts, then the regulators will. And it’s already happening. BCREA’s CEO points to the disruption occurring in the U.S. with respect to American title insurance companies—the market share traditionally enjoyed by the behemoths of the industry is being swallowed up by nimble companies offering more information, faster processes, better pricing and control to the consumer. The same will happen here.


The push for free-flowing data


In fact, in Canada, new legislation is poised to force an open banking system, thereby reinforcing the consumer’s belief that they should have access to their information and have the flexibility to share this information with any company, real estate agent or brokerage that offers better prices and more personalized services. Such changes also demonstrate the government’s appetite for free-flowing data across all categories—including real estate. 

Does this mean we should all throw in the towel and exit the stage? If you’re a real estate agent, Koot says, absolutely not. The industry’s focus on human relationships and personal connections is a barrier to the adoption of AI technologies. 

Real estate agents often rely on personal connections and rapport with clients to provide timely, insightful and much-needed support, which can be difficult to replicate with an AI-powered platform. 

Moreover, agents play a fundamental role throughout the entire home buying process as they are beside the buyer, from seeing homes to negotiating deals to handing over the keys. Compare this with the other players, such as mortgage brokers and lawyers, who are there for a snippet of the journey. 

If you’re an association or a real estate broker/owner, however, it’s imperative that you start to rethink what you’re offering and how you can change. This is because what associations and brokers offer is less of the “human element” and more about regulation and compliance—something, as we’ve already discussed, that will be challenged by AI.


Challenges and considerations


While AI and language models have the potential to revolutionize the real estate brokerage industry, there are also some challenges and considerations to keep in mind.

For example, privacy and security concerns must be addressed, particularly when it comes to handling sensitive customer data. Another challenge is ensuring that AI and language models are used ethically and transparently. 

As with any technology, there is a risk of bias and discrimination, particularly when it comes to analyzing data related to race, ethnicity, and other sensitive factors. 

Nonetheless, to avoid falling behind in this new era, traditional brokers, agents and association leaders need to be proactive in embracing these new technologies and adapting their business models to stay competitive. 

The Innovator’s Dilemma, as Koot emphasizes, teaches us that failure to do so could lead to significant market share losses to tech-driven competitors. This is especially true if the consumer demands change, he adds, “Because, ultimately, the consumer remains undefeated.” 


Share this article: