Reinventing Real Estate, Part 2: Online and Empowered Consumers Take Charge and Pay Less

demanding consumers

“Internet buyers tend to be more informed about market conditions and better prepared to respond to the home they want when they start working with an agent. Fortunately for agents, these changes don’t necessarily hurt as long as they can adjust to the new relationship and find that new-style buyers value speed and efficiency over home-hunting advice.”

– E-marketers, online homebuyers who change house rules

Thanks to the Internet and other technological innovations, more real estate information is freely available than ever before. As a result, consumers are demanding new choices, improved services, faster transactions and lower prices. According to a recent NAR survey, the number of sellers who said they did not want to pay a sales commission increased from 46 percent in 2003 to 61 percent in 2004. In 2004, 23 percent of Florida home sellers chose to sell independently excluding an agent’s sales commission, up from 14 percent in 2003 and nearly double the national average of 14 percent, according to Planet Realtor.

And internet-enabled consumers demand a high digital IQ when working with real estate professionals. Real estate professionals are now expected not only to be proficient in their own industry-specific technology, but also to use laptops, cell phones, digital cameras, personal digital assistants and global positioning systems to keep up with internet buyers and sellers.

downward pressure

“If consumers shop online themselves, they expect to save some money, just like using the self-service lane. Therefore, they are vulnerable to online discount brokers and the new affinity companies that advertise lower commissions when only consumers use their agents. These business models encourage the consumer’s idea that they should be paying less commissions.”

Blanche Evans, columnist for the Realty Times

Traditional real estate commissions, typically about 6 percent of a home’s selling price, are facing downward pressure from consumers and competitors. Some consumers claim that traditional real estate commissions don’t reflect:

– Today’s house prices. Years ago, when houses sold for an average price of $25,000, real estate commissions were typically 5 percent, or $1,250. Today, with average real estate prices in South Florida around $300,000, the cost of a 6% full-service real estate commission is $18,000. Some brokers even charge additional fees to cover administrative costs. When you consider that today’s average homeowner sells a home every five to seven years, real estate commissions can have a dramatic impact on your personal savings and wealth.

– Owner Equity. When selling real estate, most homeowners calculate the selling expenses as part of the selling price, although the commissions are paid out of the owner’s equity. (Equity is the difference between the value of your property and the amount of your mortgages owed.) Consider this example: You decide to sell a property in which you own 10 percent equity for $250,000, or $25,000. After paying a 6% commission of $15,000, you are left with $10,000 before any closing costs. In this example, the commission of $15,000 is 6 percent of the sale price but 60 percent of the equity of $25,000.

– Services rendered. Under today’s commission structure, selling a $100,000 home at six percent typically costs $6,000, while selling a $500,000 home costs $30,000. Is it really five times as difficult to sell your more expensive home? Your cost is the same whether the agent spends an hour or 100 hours marketing your home. This is one of the reasons why many real estate clients find fee-based properties so attractive.

develop alternatives

“Consumers want what they want, when they want it, and they will choose the most cost-effective source to get it. Why? Not providing consumers with timely access to different segments of the assistance they need. Because of this, .com web startups are finding a receptive audience among real estate consumers, and owner sales are booming.”

Julie Garton-Good, author of “Real Estate a la Carte: Selecting the Services You Need, Paying What They’re Worth”

Until recently, there were few viable alternatives to the traditional full-service, full-commission real estate business with an agent. Most sellers paid a single commission for a full range of real estate services, whether they needed them or not. Now, traditional real estate agencies are challenged to identify new services that have value for today’s sophisticated online and empowered consumers.

One result is an “unbundling” of traditional one-size-fits-all real estate services for consumers who want more control over real estate transactions and the costs involved. If you are willing to take on some tasks traditionally performed by agents and brokers, you could get lower transaction costs. You could benefit from the following new alternatives:

fee for services

“Consumers want help from real estate professionals, but don’t want to pay for it in the form of traditional commissions,” says a la carte real estate pioneer Julie Garton-Good. Garton-Good has been preaching the gospel for a fee for more than 20 years. As the name suggests, you can choose which tasks you want to carry out and hire qualified real estate professionals to do the rest. Many traditional real estate agents are beginning to offer a more menu-based service plan. For example, you may not mind listing your home and hosting open houses, but you may want assistance with contracts and closings.

One stop shopping

In response to shrinking margins and the rising costs of technology and lead generation, some real estate companies are trying to combine traditional and web-based services to offer consumers a single source for all their real estate needs. One-stop shopping sites generally offer or work with lenders, insurers, title companies, real estate attorneys, and others to facilitate all aspects of buying and selling. Additionally, some websites offer home improvement and related services to keep in touch with consumers between purchase and sale transactions.

Internet-based discounters

Although many web-based real estate companies went up in flames in the dot-com era, numerous new companies have sprung up to take their place. By offering targeted services such as MLS blanket deals, buyer discounts, and AVM tools, these sites appeal to independent buyers and sellers who prefer to take a more active role in transactions. In addition to the listings, some sites also offer how-to articles and advice for those who choose to go it alone.

Tradition + technology + turbulence = opportunities

What can independent buyers, sellers and investors expect as the industry trends, changes and continues to evolve in this new era of real estate?

o The Internet and other technologies will evolve and transform the $1.3 trillion real estate industry. Technology will continue to reduce the time, cost and complexity of manual processes, and increasingly sophisticated search and assessment tools will play a more strategic role.

o Free and inexpensive real estate resources will continue to be available and even multiply on the internet. When it comes to real estate, knowledge really is power. Consumers will seek to use their power to gain more control over the real estate process and subsequently expect to be compensated in the form of reduced and chargeable commissions.

o The role of traditional real estate agents will evolve as connected consumers become more knowledgeable. This will likely trigger some restructuring and consolidation of traditional brokerage firms, but will also drive the development of innovative new practices aimed at online and empowered consumers. Real estate professionals will focus more on nurturing their local knowledge and industry expertise, while consumers will handle some buying and selling tasks themselves.

o Traditional real estate commissions and profitability levels will continue to face downward pressure from various sources. The future will be profitable for brokerage firms able to expand their core competencies from neighborhood and industry knowledge into flexible new consumer-centric offerings.

o The traditional high-touch, full-service real estate agency is evolving, not going away. Real estate professionals who provide exceptional service and value to their clients will always be in demand.

The internet now has more real estate knowledge, tools and resources than ever before so you can buy and sell with greater confidence. For real estate professionals, reinventing the industry means making tough decisions, changing processes and embracing new opportunities. But for consumers, real estate reinvention is undoubtedly a winner.

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