Table of Contents
Fragmentation occurs on two levels – fragmentation of the market leading to an overload of options, and fragmentation of roles in a transaction leading to various third parties being involved.
Fragmentation of the Market
The fragmentation of the market leads to two contradicting problems. One problem you might face is that because the market is so fragmented, you might never understand that you actually have a huge choice in picking and choosing different third parties to work with (ie. You can pick a different lender if yours isn’t working out for you; you can choose a different title officer if you prefer a cheaper solution; you can shop around for a different inspector with varying levels of services, etc). This is because most of Real Estate works through relationships. Many of the stakeholders in a transaction tend to have relationships with one another in order to build each other’s businesses.
This problem manifests itself because your point of access to all of these products and services is primarily your agent. Since your agent is generally your point of contact, and the single source of truth for your home buying process, the options that your agent recommends to you are the options you end up choosing (whereas in theory, you have all the options on the market available to you – there is imperfect information).
You might end up being channeled towards subpar options and lose out on better alternatives, just because your single source of truth is inexperienced and immature – your agent might selfishly hope to close the transaction quicker (even though this usually ends up backfiring because subpar options lead to complications in the transaction that further cause delays, unexpected expenses and stress for everyone involved).
However, this might actually be a boon rather than a bane, because if the agent is good and is doing their job well, then they would have done all the research on your behalf to ensure that everyone that you interact with (and that you do business with) is the right fit for you and will work for you to ensure the success of the transaction.
The other type of problem is where your agent does inform you of all the different options you have at your hand, but as a result are overwhelmed by the sheer number of options you have – a classic case of Paradox of Choice. What you may not realize is that these services provided by your options are commoditized – the difference between one option and another is marginal (ie. You aren’t going to find significant difference between your options because they all essentially fulfill the same purpose of getting the job done). As an analogy, if you were to go to a grocery store, and try to shop for different apples from the same basket, while you might find that one that is slightly more red than another, or slightly less scarred, most apples aren’t going to be much different from one another. In this scenario, the agent is doing you a disservice by not narrowing your choices and by not having done the research on your behalf – a symptom of inexperience on their part.
Fragmentation of Roles
In a typical transaction, you might see yourself working with a buyer’s agent, a seller’s agent, a loan officer/lender, a title officer, an inspector, an appraisal officer, and sometimes, a lawyer. As we previously covered, many of these third parties that assume responsibility to help you fulfill a different step of the process are actually beneficial to you and protect you in the transaction. However, because there are so many people involved, usually each with a different workflow and different needs, the home buying process ends up being very messy.
Since these roles are being fulfilled by different entities (not only different people, but usually different people from different organizations and different types of organizations – such as banks, law firms, inspection agencies, brokerages etc.), it becomes obvious why there is very little standardization of workflows – not to mention the differences in regulations and practices between different real estate markets.
Generally, to help you through this mad process, you would hire a buyer’s agent (technically, you would choose to work with a buyer’s agent but the seller pays for them upon closing). An agent is meant to represent you and your best interests, to ensure that at every step of the process, you end up coming out on top (be it monetarily or in having a better experience). This is a deep relationship of trust being placed in each other – you (the modern home buyer) placing trust in your agent to have your best interests at heart at all times, and the agent placing trust in you to be serious about buying a home and in reasonable means, go through with the transaction once you’ve found a home you are excited about (given that they usually only get paid upon a successful closing).
But if so much responsibility is placed on the agent in ensuring that a transaction proceeds perfectly to meet the needs of the modern home buyer, agents ought to be exceptional beings no? They ought to hold power to move the needle where required, and remain faithful to you at all times, no?
Unfortunately, this isn’t always the case, and many times it isn’t up to your agent to dictate exactly how the process happens – there are more powerful forces that overrule the wishes of you and your agent (we think this is a very important topic that you should educate yourself on, the specifics of which aren’t pertinent to this current topic, therefore we’ve written about it separately here). These powerful forces are driven by profits, and while vanilla capitalism would prescribe that an alignment of incentives that ties in with an alignment of profits should lead to an optimal experience, this isn’t always the case, especially in such a fragmented and complex system.