The evolution of real estate
Arguably, the Internet has not had a more significant impact on any industry than real estate. Indeed, it has changed the way potential home buyers find the property they ultimately buy.
Here is the most compelling statistic to back up my argument: According to the National Association of Realtors (NAR), 70% of home buyers found the home / property they finally bought 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, rooms, bathrooms, region, etc.) and then have the real estate agent go through the MLS to find suitable properties to suit your requirements. The real estate agent would then present his findings and schedule appointments to view. Today, prospective buyers have access to that same information and can use web-based products like Google Earth to zoom in and view 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 sold down the street. They can also search for mortgages and compare rates. City data sites provide demographic data, rank school systems, and provide community characteristics for virtually every city and town in the United States. And the best part, it’s all 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 visits 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.ziprealty.com
10. move.com
Realtor.com, the official site of the National Association of Realtors, is by far the No. 1 ranked real estate website with an 8.8% market share. According to USA Today, traffic to real estate websites increased 8% in 2005, twice the growth rate of overall Internet traffic.
The internet has effectively leveled the playing field: Home buyers simply 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 fees. Supporting this perspective is the fact that real estate commissions have fallen to an average of 5.1%, down from the long-standing 6%, according to Real Trends.
As in any industry, the less you do, the less you get paid, why should real estate agents be any different? The funny thing is, 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 price. But don’t underestimate the NAR’s powerful 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 grant rebates to home buyers or offer low-cost, on-demand services to home sellers. The Justice Department, in an effort to protect competition laws, has lobbied some states to reverse plans to pass those laws.
In 1995, only 2% of home buyers used the Internet to search for a home. Last year, 77% of home buyers went online to search for a home. Surprisingly, again, according to the NAR, the average Realtor 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. Median home prices fell 6% this year. Meanwhile, home buyers and sellers are looking for new ways to save money and find them online. Armed with more information, many home sellers are cutting the real estate agent entirely and moving toward “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 repository of properties 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 an FSBO property in the MLS for a “flat fee” rather than a commission. The service is basic and the real estate agent listing the property does not provide any services beyond listing the property in the MLS. However, it exposes the typically marketing-challenged FSBO to the real estate agents’ most effective sales / marketing tool for a minimal fee (typically $ 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 buy has not: 81% of home buyers who used the Internet to search for a home still hired a real estate agent to to buy.
The fact is, the internet has dramatically eroded the value of traditional real estate agents. Ask yourself this question: will you put a sign on your property, list the property in MLS, and then spend the next 3 months convincing you to reduce the sale price by 3%? Is a home “showing” worth 3% of the sale 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 the most of it. From the escalation, a real estate agent simply opens the door after your trip.
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