“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
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.
The Bottomline
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.
I've talked to more commercial real estate professionals than I care to count about their listing accuracy and pocket listings. We've had this topic at the CRE Summit. This article explains it as well as any I've seen. - Jerry Slusky