The Evolution of Real Estate

Arguably, the Internet has not had a more significant impact on any industry than real estate. It has effectively changed the way prospective homebuyers find the property they ultimately purchase.

Here’s the most compelling stat to back up my argument: According to the National Association of Realtors (NAR), 70% of homebuyers found the home/property they ultimately purchased online “BEFORE” hiring a realtor. Before the internet, people looking to buy a new home had to go to a real estate agent and describe their requirements (price, bedrooms, bathrooms, region, etc.) and then have the real estate agent go through the MLS to find suitable properties that match your requirements. The real estate agent would then present their findings and schedule viewing appointments. Today, prospective buyers have access to that same information and can use web-based products like Google Earth to zoom in and see aerial photos of homes and neighborhoods. They can also go online and get free appraisals or access real estate comparables and see exactly how much the house down the street sold for. They can also search for mortgages and compare rates. City data sites provide demographic data, rate school systems, and provide community features for virtually every city and town in the United States. And the best part, everything is free and easily accessible at your fingertips!

While there are many websites that offer access to real estate listings according to Hitwise (an internet monitor that collects data directly from ISP networks), here are the top 10 real estate websites:

1. realtor.com (the most active site in the world with 350 million page views per month)

2.realtytrac.com

3.homegain.com

4.rent.com

5.remax.com

6.realestate.yahoo.com

7.zillow.com

8.apartments.com

9.ziprerealty.com

10.move.com

Realtor.com, the official site of the National Association of Realtors, is by far the number 1 real estate website with a market share of 8.8%. According to USA Today, traffic to real estate websites grew 8% in 2005, twice the growth rate of Internet traffic as a whole.

The internet has effectively leveled the playing field: homebuyers just don’t need a real estate agent as much as they used to, this fact ultimately puts pressure on real estate agents to justify their commission rates. Supporting this view is the fact that real estate commissions have fallen to an average of 5.1%, down from a longstanding 6%, according to Real Trends.

As in any industry, the less you do, the less you get paid, so why should real estate agents be any different? The funny thing is that as home prices go up, so do commissions, unless of course you hire a “discount” realtor. These brokers recognize their reduced role and workload and simply offer their services at a reduced rate. But don’t underestimate the powerful NAR lobby (remember they have 91 BILLION reasons to protect their industry). Real estate agents have helped “persuade” a dozen states to pass laws limiting the ability of real estate agents to give rebates to homebuyers or offer low-priced a la carte services to sellers. household. The Justice Department, in an effort to protect competition laws, has pressured some states to reverse plans to pass such laws.

In 1995, only 2% of home buyers used the Internet to search for a home. Last year, 77% of homebuyers searched for a home online. Amazingly, again, according to the NAR, the average real estate agent spent less than $500 a year on the Internet (advertising and development).

The growing dominance of the Internet comes at a crucial point in the real estate market. The median home price fell 6% this year. Meanwhile, home buyers and sellers are looking for new ways to save money, and they find them online. Armed with more information, many home sellers are ditching the real estate agent altogether and moving toward “For Sale By Owner” (FSBO). The biggest challenge for FSBOs is effectively marketing their property. While there are many (thousands) of websites catering to FSBOs, the industry is extremely fragmented and there is no real estate repository that competes with Realtor.com or any of the other “Top 10” real estate sites listed above. One option is flat rate MLS. With Flat Fee MLS, a real estate agent essentially agrees to list a FSBO property on the MLS for a “flat fee” instead of a commission. The service is basic and the real estate agent that lists the property does not provide any services beyond putting the property on the MLS. However, it exposes the FSBO who typically has marketing problems to Realtors’ most effective sales/marketing tool for a minimal fee (usually $399 – $699). Another option is to simply list your property on Realtor.com (my preference, I’ll explain why in another article).

While the way people “search” for a property has changed, the way they shop hasn’t: 81% of homebuyers who used the internet to search for a home still hired a real estate agent to purchase.

The fact is that the Internet has drastically eroded the value of traditional real estate agents. Ask yourself this question: Put a sign on your property, list it on the MLS, and then spend the next 3 months convincing you to reduce the sale price by 3%? Is “showing” a house worth 3% of the sales price? Am I being too harsh, maybe? I understand that real estate agents provide a level of expertise and in most cases “deliver” the buyer to their doorstep, but if you look at the process of getting there, the buyer is clearly doing most of it. escalation, a real estate agent simply opens the door after his trip.

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