Saturday, October 17, 2015

Real Estate in the Internet Age


It will come as no surprise when I say that the Internet has transformed our lives. For instance, today’s travel industry bears little resemblance to the industry of 20 years ago. Travel agents are largely gone and consumers book flights and hotels or through sites like Priceline and Expedia that are programmed to find the cheapest deal.

From retailing (Amazon) to auctions (eBay) to job searching (Monster), to sending a letter or photo (Email) to advertising, the Internet has dramatically changed the way we do things, making it faster and cheaper to get what we want.

In real estate, big sites like Realtor.com and Zillow make it easy to shop for a house anywhere in the US while wearing your pajamas in the comfort of your home. You can find a mortgage online from Internet lenders like us, Total Mortgage, that offer more attractive rates than you might find locally. There are even “for sale by owner” sites that help spread the word for those sellers who prefer to go it alone.

The Old Way or the Highway

Yet the essential mechanism and cost structure for residential real estate transactions has changed little in more than 100 years. Hiring a professional to sell your house requires you to agree to pay a commission—a percentage of as much as 6 percent of the sales price.

This is more or less the same way your grandparents’ generation sold their homes. In fact, the multiple listing service, which at the center of the housing marketplace, was created in the 19th century not to make life easier for consumers, but to make it easier for their brokers to match buyers and sellers.

Brokerages own and operate the nation’s 900 or so MLSs and a dozen or so national franchises and big regional companies dominate real estate brokerage business. Try as they might, Internet companies and the federal government have failed to bring about wholesale, consumer-friendly changes like those in travel, employment, financial services, and retailing.

Selling your house on your own today is actually harder and more expensive than it used to be. No wonder the percentage of “FSBO” sales declined from 13 percent in 2001 to 9 percent in 2014.

Incremental Change


One of the big reasons sellers still need human agents has nothing to do with the real estate transaction, per se. Federal and state laws governing mortgages and home sales, most of them ostensibly to protect consumers, instead make transactions more complex, and virtually impossible for consumers to take on by themselves. In fact, the paperwork mistakes is the leading reason that 20 percent of real state deal fail to close.

So the real estate has made the relatively painless migration from bricks and mortar to the Internet, but now changes in the choices available are creating cracks in the wall.


 Discount Brokers vs Hybrid Brokers

Sellers care most about saving money. For many years fee-for-service brokerages have uncoupled their services and sell them for a fixed price like menu at a restaurant: listing a property on the Internet, providing a competitive marketing analysis, staging the house, etc. Others simply charge less than their competitors or rebate a percentage of their commission when the deal closes. For some sellers, these have been a good alternatives, yet they constitute a small segment of the real estate industry.

What’s happening today is different. New entrants into real estate business are seeking ways to utilize the things the Internet does well to the real estate business to save money for sellers and save costs for brokers by turning task over to computer platforms that have been handled by real people.

These include proactively matching properties with buyers through social media, technology platforms that take the transaction from lead to closing online, “virtual” agents who handle properties from a much larger geographic area than traditional agents by concentrating on marketing exclusively online, and providing services, like state-of-the-art home valuation, that empower sellers to make more informed decisions.

These brokers are “hybrid” because many offer traditional services or traditional ways to be compensated alongside their new options, affording a choice to consumers. As the real estate industry continues to evolve, expect to see more and more of them.

source: totalmortgage.com