“What's the deal with commercial real estate listings? I mean, why are so many of them bogus? Why do these people bother with putting ads up if they aren’t useful to anyone?” — Jerry Seinfeld*
*Not a legitimate Jerry Seinfeld quote
It seems like so many commercial real estate listings found online are some combination of already rented, inaccurate, incomplete, or just plain shady. Why is that? Well, it’s a matter of some unintended consequences of the compensation structure of the listing agents, plus the monetization strategies of commercial real estate listings websites. This is all reflective of the search engine algorithms which the listing agents & listing websites depend on for web traffic. It’s an endemic problem. Here are the mechanics of why that is:
1) The Algorithms (aka The Algos)
Let’s start with the search engines: delving into Search Engine Optimization (SEO) inside baseball goes far beyond the scope of this post, but in a nutshell, the search engines’ algorithms try to find the website which answers a searcher’s question most effectively.
These algos factor in a number of things, but one core thing that the search engine always asks is: “If I show a link to a particular website, for a particular search term (e.g. “industrial space for rent”), do the searchers click on it? If they do click, do they leave that site right away and keep looking for their answer on other sites? Or do they stick around?”
This is known as search engine result page engagement. So if a listing site has tons and tons of commercial real estate properties listed, then that will keep the searcher busy for a while “engaging”. Therefore the search algorithm says, “hey searcher, you clicked and stayed when you searched for “industrial space for rent”, website xyz.com must be a good site to find info on “industrial space for rent”.” So how clever does a commercial real estate listing website that competes with hundreds of clones have to be to realize that they should not voluntarily lower their search rankings? It ain’t particle physics.
So this unintended consequence raises an interesting question in my mind — What incentive does a commercial real estate listing site have to police their own listings for accuracy? If you answered, “Little to no incentive” then you answered correctly. Keeping searchers busy on your site feeds the Googley Monster— giving the searchers accurate and up-to-date property information right away does not.
2) The Money
The majority of commercial listing websites have a pretty sweet business model (for them). It’s one of those business models where the number of listings (whether good or bad) can help them make more money.
So we’ve learned that the more listings available on a particular website, the better for getting searchers to your site, but how do the CRE listing websites make money? It’s pretty great; they charge searchers (after a certain number of searches) to continue to search on their platform. Better yet, they charge landlord’s and listing agents to be among the properties that “free searchers” can access. Keep in mind that some listing sites don’t charge the searchers. They make money through added services or partners.
So this unintended consequence raises an interesting question in my mind — What incentive does a listing site have to police their own listings for accuracy? If you answered “Little to no incentive” then you answered correctly. Keeping searchers searching on your site feeds the Money Monster — giving the searchers accurate and up-to-date property information right away does not. In addition, trying to police accuracy takes A LOT of manpower and salaries. It’s a problem that is hard to make cost-effective.
3) The Money (pt. II)
As we’ve seen, listing agents and landlords need to pay some CRE listing websites (the preeminent ones charge) for greater access to searchers. Listing agents (as opposed to tenant rep agents) only make money if they rent a property that they represent. It’s commission only. So they have to spend their time drumming up new business, rather than updating their listings on websites.
It takes time, effort, as well as cash for these agents to post and maintain their listings. It doesn’t take much imagination for a listing agent to say to themselves, “If I take a recently rented property listing down, will get any more business from that paid listing post?” or better yet, “If I list a space at a market rate price, searchers might call me. If I list a space below a market rate price, searchers will certainly call me.” This is not always intentional, but either way, the result is the same. Can you blame them, though? I don’t. It’s just the nature of the beast.
So this unintended consequence raises an interesting question in my mind — What incentive does a listing agent have to update their own listings for accuracy? If you answered “Little to no incentive” then you answered correctly. Keeping searchers calling you feeds the Conspicuous Consumption Monster — giving the searchers accurate and up-to-date property information right away does not.
4) The Scammers
Commercial real estate fraud is pretty rare. Plus, common sense combined with a bit of due diligence will keep most searchers from falling victim. But scammers need searchers too, and just like everyone else in CRE, they use listing websites to get in front of their prospective “marks”.
So this unintended consequence raises an interesting question in my mind — Ah, let’s skip it. You get the idea.
Commercial real estate commissions amount to tens of billions of dollars annually in the US alone; all built upon the status quo. That doesn’t include the huge amount of money generated in commercial rents, construction, etc. I found it odd at first, why the problem of accurate and timely listing info is still a thing in the digital age. I wanted someone to blame. But, when you closely examine the issue, you don’t see a cabal of listing misers colluding to make the CRE search process difficult. That’s just not the case. What becomes clear however, is that there are fundamental structural reasons why so many listings are lackluster, and that’s unlikely to change any time soon.
By: Charlie Muir
Growth Specialist | Digsy
About the Author: Charlie Muir is a UCSD alum and resident Growth Hacker at commercial real estate tech startup Digsy. He was formerly a growth specialist at LawnLove; a Summer 2014 Y Combinator company.