Re-Inventing Real Estate: The Changing Real Estate Industry

For decades, the job of real estate agents and the real estate transaction followed a predictable path of yard signs, newspaper ads, open houses and miles of paperwork.

Real estate professionals now face issues similar to the ones that have transformed the retail, personal finance and travel planning industries, as online sources and empowered consumers have changed the game.  

The real estate industry has begun to transform itself from providing traditional, carefully controlled “agent-centric” transactions to new “consumer-centric” practices.

Here are five trends which are driving change in real estate:

1. Intermediation and Disruption – The Internet has matured into a powerful platform for delivering real estate information, forever changing the mode of interaction between real estate professionals and their clients and prospects.

2. Displacement – The demand for self-service and consumer-direct business models is being felt by real estate professionals who are striving to develop attractive new offerings for Web-savvy consumers.

3. Web-Enabled Consumers – You now have more real estate knowledge, tools and resources at your fingertips than ever before.  More savvy consumers tend to be more independent and demanding.  Their challenge is to convert raw information  into best-actionable knowledge without professional assistance.

4. Downward Pressure on Fees – Traditional real estate commissions based on a local norm and a percent of a property’s sales price are facing downward pressure. 

5. Developing Alternatives – The real estate industry is transforming itself to provide targeted services and exciting new options that add value for consumers. Innovative, and usually smaller, brokers have responded with new service packaging based on “smarter and better” marketing with flexible fees.

Intermediation and Disruption:

“We are going to see our industry go through dramatic transformation via the Internet and consolidation of agents and companies,”  

                                                 - Dirk Zeller, eRealty Times Columnist

Harvard Business School professor Clayton Christensen’s coined the term “disruptive technology” to explain recent developments in real estate.  The World Wide Web and advancing technology is only part of what’s shaking things up.  Essentially, the real cause of disruption is not just technology, but technology-enabled real estate consumers, and a new consumer ethic.

Intermediation is the entry of non-traditional providers to capture market share or remodel the existing  business model.  Banks?  Insurance companies?  Google?

Displacement:

Currently, about 2.4 million real estate licensees operate nationally, according to the Association of Real Estate License Law officials. The National Association of Realtors (NAR) has more than one million members, up from about 760,000 members five years ago.

Many real estate professionals and industry observers expect a significant decline in this number because some tasks traditionally performed by agents and brokers can now be done more quickly and easily by Web-enabled consumers.

“Simply put, the traditional model is too inflexible. Consumers are seriously questioning the value of a real estate agent.  They frequently feel that many of the traditional tasks undertaken by the agents are now either no longer required or can be done by the consumer themselves.”   

                                                   – Swanepoel & Tuccillo, Real Estate Confronts Profitability

The quotes above, from a popular report on emerging real estate business models and dwindling profit margins, highlight a number of issues traditional real estate professionals are now facing.  

Most real estate industry experts and economists are laying their bets that the number of traditional real estate agents will decline, while new real estate [models] will be created to deliver value more efficiently and more cost effectively to Web-savvy customers.

Web-Enabled Consumers:

According to the National Association of Realtors (NAR), more than 72 percent of homebuyers now begin their home search online.  The popularity (not to mention the effectiveness) of online real estate ads surpassed newspaper property listings back in 2001, and the gap is widening.  The majority of homebuyers identify the home they ultimately purchase through an online source.

Home Search:  Web-enabled homebuyers like you are taking a more active role in researching homes and neighborhoods.  You also now spend less time with real estate professionals once you have completed your research.  Internet homebuyers also used the Web effectively to filter out properties that did not interest them, visiting 6.1 homes on average versus 15.4 for traditional buyers.

Visualization:  Today, you can view photos and detailed information for hundreds of properties in the time it used to take to visit a single one.  And the Web provides much more opportunity than simply moving print listings online through powerful and flexible visual search tools.

Valuation:  In addition to making home searches easier, automated valuation model (AVM) software is beginning to make a big impact (still in its infancy as to accuracy) in how property list prices are reviewed. AVMs generate valuation estimates by analyzing and comparing property information data.  AVMs are quick but it’s the familiar story:  “Garbage in; garbage out”.   What is “comparable”?  Is a nearby property that is in a lesser or greater neighborhood  relevantly proximate? A Realtor CMA may be more accurate, but it depends on the experience of the Realtor who provides this service.  The “Garbage in; garbage out” rule applies here, too.

Developing Alternatives:  The MLS “Goes Public”: 

“In real estate, MLS data sits at the apex of the change, specifically the MLS information that is pushed to the Internet every minute of the day.”  

                      – Bradley Inman, Publisher of Inman News

Once an exclusive tool for real estate professionals, in many communities the multiple listing service (MLS) has in recent years become a very public platform for real estate listings.   That is not yet the case here in Lincoln, although pioneering  and progressive new brokers are trying to change the model imposed and maintained by the large and established brokers to control and “brand restrict” (limit) web-based information about real estate listed by brokers sale.

Public Access to MLS Information:  In Lincoln, Nebraska, all local MLS published listings are viewable at www.SmarterChoice™RealEstate.com by the public.  As of the 2010, this is one of two local brokers who have taken this bold and innovative step to give real estate consumers a better way to buy or sell their homes.

These websites have been dubbed “Virtual Office Websites” (VOWs) since in some communities they also replace the traditional brick and mortar buildings otherwise known as traditional real estate offices. 

With Realtors working remotely 90%(+) of the time, the cost, expense, and hassle of offices for real estate is becoming a thing of  the past, and the elimination of that expense is  helping the new breed of brokers offer savings to their selling clients.

As an interesting footnote about VOWs, the “real estate establishment” inserted a public registration condition, as a condition to settle an anti-trust lawsuit brought by the U.S. Department of Justice against the National Association of Realtors (N.A.R.) a few years ago.

N.A.R. brokers defend their requirement for public registration as a condition to see listings as a way to monitor who is viewing “their” listings that are displayed by this new breed of public MLS look-alike websites.  (But how can anyone validate anyone’s online registration identity?  You have to be a super-geek to do this; few are.) 

In reality, the more plausible reason for a registration requirement (and other option local requirements) to use VOWs to view all listings in one convenient stop was anti-competitiveness – a way to discourage and slow the use and proliferation of this new generation of public access MLS information which threatens the business model and the eventual survival of the traditional real estate brokerage model and the companies which comprise it.  User-friendly?

Developing Alternatives:  Listing “Syndication” to Achieve Wider Awareness: 

Some real estate brokers also have wisely decided that it is in the best interest of their selling clients (and therefore their long term interests, too) to share or syndicate their listings across many local, state, national, and even international websites, versus holding their listing “captive” and only publishing them on their own branded  (in-house) websites where fewer eyes can see them, but potentially lead to more double-sided sales to enhance their gross and net revenue streams and reinforce their brand.

Some of these mega-sites used by the more progressive brokers to syndication their listings include :  Realtor.com; Homes.com; Yahoo.com; GoogleBase.com; Zillow.com; RealEstae.com; WSJ.com; Excite.com; AOL.com; and MSN.com.

Some MLS listings also appear on local, regional and national brokerage Websites through Internet Data Exchange (IDX) agreements that allow participating Realtors to reciprocally share listings and display them to consumers.  

But a more costly VOW agreement is currently required to display all published MLS listings online, and thus, few brokers have yet taken this larger step.

Developing Alternatives:  Remodeling the Brokerage Model and Cost to Sell: 

When you go to most restaurants you can order and consume what you wish.  In some restaurants this model is extended to “a la carte” dining, which means that if you only want to order steak, you don’t have to buy the potato, vegetable, and salad. 

So, what is wrong with this choice in real estate brokerage services, and why do few offer it?  And why do some brokers also try to sell you loans and escrow closing services (appetizers and desserts)?   It’s called the ‘double-dip’ and ‘triple-dip’ . . . more profit.

One size and one price does not fit everyone, and no one give up choices or be forced into a “take it or leave it” offering.  Also, the broker may be the best point of purchaser for real estate sales services, but not so for loans or other services.

True “a la carte” is one solution.  An even better solution may be keep the service menu strong (no deletes), but not pre-set the price of that menu based on what is served.  Rather the service can be priced on how the home is sold and/or how soon the home sells.  There are choices galore out there; one will be best for you.

Stay tuned –much more change is expected in real estate brokerage and other service-based industries, and it is likely that the new brokers will offer what consumers demand, at prices that work for both – and that in the process the traditional model of real estate brokerage will be changed forever.