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Reinventing Real Estate, Part 1: Online and Empowered Consumers Are Bringing Charge and Paying Less

For decades, the Ola EC universe turned in a predictable manner. The roles of individuals, sellers and real estate professionals were fairly well recognized and transactions followed a predictable path of lawn signs, newspaper ads, open houses and miles for paperwork. Recently, online and empowered consumers have transformed the game. Real estate professionals now face issues similar to the kinds that have transformed the retail, personal finance and journey planning industries. As technology advances and new business products evolve, the real estate industry has begun to turn itself from providing traditional, carefully controlled "agent-centric" ventures to new "consumer-centric" practices. The following is a look at a few of the recent industry trends and how buyers, sellers not to mention investors can expect to benefit. The "Five Ds" which have been driving change in real estate are: 1 . Disruption - Over the past 10 years, the Internet has matured into a powerful console for delivering real estate information, forever changing the relationships between buyers, sellers and real estate professionals. 2 . Displacement - The popularity and acceptance of self-service and also consumer-direct business models is being felt by real estate authorities, who are striving to develop attractive new offerings for Web-savvy consumers. 3. Demanding consumers - You now have more real estate property knowledge, tools and resources at your fingertips than ever before. More understanding consumers tend to be more independent and demanding. 4. Downward force - Traditional real estate commissions of 5-6 percent of any property's sales price are facing downward pressure. 5. Developing alternatives - The real estate industry is changing itself to provide targeted services and exciting new possible choices that add value for consumers. Disruption "We will certainly see our industry go through dramatic transformation via the world wide web and consolidation of agents and companies. " : eRealty Times Columnist Dirk Zeller Some industry observers have adopted Harvard Business School professor Clayton Christensen's term "disruptive technology" to explain recent developments in properties. Though it's easy to point to the World Wide Web and advancing technology because main changes in real estate, that's only part of that which is shaking things up. Essentially, the real cause of disruption seriously isn't technology, but technology-enabled real estate consumers. Web-enabled consumers Good National Association of Realtors (NAR), more than 72 percentage point of homebuyers now begin their home search online. The worldwide recognition of online real estate ads surpassed newspaper property sale listings back in 2001, and the gap is widening. Less than one particular percent of buyers first learned about the home they paid for on the Internet in 1995, while in 2004, that number handed down 20 percent. According to a California Association of Realty (CAR) survey, 97 percent of respondents said the world wide web helped them understand the buying process better plus 100 percent said using the Web helped them understand place values better. Web-enabled homebuyers like you are taking a further active role in researching homes and neighborhoods. You furthermore mght now spend less time with real estate professionals after completed your research. Internet homebuyers also used the Web essentially to filter out properties that did not interest them, consulting 6. 1 homes on average versus 15. 4 just for traditional buyers. Today, you can view photos and detailed details for hundreds of properties in the time it used to decide to use visit a single one. And the Web provides much more occasion than simply moving print listings online. The growing availability of residential high-speed Internet connections has boosted the popularity in virtual tours and interactive maps, providing consumers through powerful and flexible visual search tools. In addition to building home searches easier, automated valuation model (AVM) software program is making a big impact in how properties will be evaluated. AVMs, which generate valuation estimates by scrutinizing and comparing property information data, are becoming increasingly advanced and accurate. While not considered a substitute for human value determinations, AVMs are gaining popularity because they are inexpensive, easy to use and develop valuation estimates in minutes. Now AVMs, used frequently in electronic mortgage approval processing during the recent re-financing boom, are becoming available on real-estate Websites aimed at consumers. This is usually a significant development for independent sellers, who often think it's challenging to price their properties correctly when reselling on their own. The MLS goes public "In real estate, MLS data sits at the apex of the change, specifically typically the MLS information that is pushed to the Internet every small of the day. " - Bradley Inman, Publisher regarding Inman News Once an exclusive tool for real estate individuals, the multiple listing service (MLS) has in recent years become a very general population platform for real estate listings. The MLS is the country's most comprehensive database of properties for sale - a number of out of five homes sold in the United States are listed within the MLS. MLS properties are available to agents and providers worldwide, and are now accessible via consumer Web sites which includes Realtor. com, WSJ. com, Excite, Netscape, AOL as well as MSN. MLS listings also appear on local, local and national brokerage Websites through Internet Data Substitute (IDX) agreements that allow participating Realtors to share entries and display them to consumers. Even though only licensed realty can list property on the MLS, the system has initiated to figure prominently for the $110 billion independent seller (for-sale-by-owner or FSBO) market. About 13 percent of realty sales are now FSBO, conducted without a broker's assistance. Style "flat fee MLS" into any major search engine, will probably see dozens of real estate professionals willing to list your property from the MLS for a fee. If you are willing to pay a fee of 2-3 percent, you can attract the attention of numerous agents who will show your property to prospective buyers. You may then reduce the cost of the sale to about half a traditional 5-6 percent sales commission, plus the cost of the MLS list of. If you find an independent buyer working without an agent, you could come up with a sale with no commission at all and pay only an THE LOCAL MLS listing flat fee. Displacement Currently, about 2 . 4 trillion real estate licensees operate nationally, according to the Association of Realty License Law officials. The NAR has more than one zillion members, up from about 760, 000 members all 5 years ago. Many real estate professionals and industry observers expect to have a significant decline in this number because some tasks as a rule performed by agents and brokers can now be done more rapidly and easily by Web-enabled consumers. "Historically the fundamental car owner of the real estate industry was the control of advice. The real estate agent and the real estate office were the actual sources of comprehensive information on which properties were for sale and others who might be interested in buying them. With this control profits were practically guaranteed. Moreover, because this exclusive deal with was akin to a monopoly by virtue of the mls (MLS) any firm of any size could deliver the customer equally well. As a result, the number of real estate companies mature without regard to market efficiencies. Simply put, the traditional model will be too inflexible. Consumers are seriously questioning the value of a real estate professional. They frequently feel that many of the traditional tasks undertaken by the providers are now either no longer required or can be done by the purchaser themselves. " - Swanepoel & Tuccillo, Real Estate Confronts Profitability The quotes above, from a popular report regarding emerging real estate business models and dwindling profit margins, emphasize a number of issues traditional real estate professionals are now facing. Given that the real estate industry has grown historically without regard to plug efficiencies, the issue has only been compounded since 2001, as new agents signed on in droves, lured by low interest rates and skyrocketing home prices in many locations. It's likely that the number of traditional real estate agents will downfall, while new types of real estate jobs will be created to achieve value to Web-savvy customers.

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Reinventing Real Estate, Part 2: Online and Empowered Consumers Are Bringing Charge and Paying Less

Demanding consumers "Internet purchasers tend to be better informed on market conditions and more effective prepared to act on the home they want when they start working along with a realtor. Luckily for realtors, these changes don't specifically hurt, as long as they are able to adjust to the new relationship and recognise that the new-style buyers value speed and efficiency through guidance when finding a home. " - E-marketer, Word wide web Home Buyers Changing the House Rules Thanks to the Internet together with other technological innovations, more real estate information is freely available than in the past. As a result, consumers are demanding new choices, improved services, more quickly transactions and lower prices. According to a recent NAR investigation, the number of sellers stating that they didn't want to pay a fabulous sales commission fee rose from 46 percent throughout 2003 to 61 percent in 2004. In 2004, 23 percent of Florida home sellers opted selling independently without an agent, up from 14 percent through 2003 and nearly double the 14 percent countrywide average, according to Planet Realtor. And Web-enabled consumers are hard a high digital IQ when working with real estate professionals. In addition to being well-versed on their own industry-specific technology, real estate professionals now are expected to use laptops, mobile phones, digital cameras, personal digital assistants and world-wide positioning systems to keep pace with Internet buyers in addition to sellers. Downward pressure "If consumers are going to do the home-shopping online, they expect to save some money, just as they would just for using the self-service lane. That's why they are susceptible to online lower price brokers and the new affinity companies that are promoting smaller commissions if only the consumers will use their agents. All these business models promote the idea to consumers that they ought to possibly be paying less money in commissions. " Realty Times Columnist Blanche Evans Traditional real estate commissions, typically around 6 percent of a home's selling price, are facing downward tension from consumers and competition. Some consumers claim normal real estate commissions don't reflect: - Today's home deals. Years ago, when median-priced homes sold for $25, 000, real estate commissions were typically five percent, or $1, 250. Today, with South Florida median home rates around $300, 000, the cost of a six percent full-service real estate commission becomes $18, 000. Some brokers sometimes charge additional fees to cover administrative costs. When you consider who today's average homeowner sells a home every five for you to seven years, real estate commissions can dramatically impact your own savings and net worth. - Owner equity. Once selling properties, most homeowners calculate the cost of selling in the form of portion of sales price, though the commissions are paid out connected with owner equity. (Equity is the difference between the value of this property and amount of mortgages owed. ) Consider this occasion: You decide to sell a property for $250, 000 in which you hold 10 percent equity, or $25, 000. After paying an important six percent commission of $15, 000, you are placed with $10, 000 before any applicable closing expenditures. In this example, the $15, 000 commission is six to eight percent of the selling price, but 60 percent of the $25, 000 equity. - Services performed. Under today's fee structure, selling a $100, 000 house at half dozen percent typically costs $6, 000, while selling the $500, 000 house costs $30, 000. Does reselling the more expensive home really require five times alot more effort? Your cost is the same whether the agent gets to spend one hour or 100 hours marketing your home. This is one particular reason many real estate consumers find fee-for-service real estate therefore appealing. Developing alternatives "Consumers want what they want, after they want it and will gravitate to the most cost-effective source to put together it. Why? Because our "one-size-fits-all" approach to working with owners and buyers is archaic and won't allow users to access various segments of help they need in a timely fashion. Consumers. com Web start-ups are finding a receptive audience on real estate consumers and why for-sale-by-owners are burgeoning. " Julie Garton-Good, Author of "Real Estate a los angeles Carte: Selecting the Services You Need, Paying What There're Worth" Until recently, you have had few practical selections to the traditional full-service, full-commission real estate transaction with a agent. Most sellers paid a single commission fee for a 100 % range of real estate services, whether they needed them or not likely. Now traditional real estate agencies face the challenge of finding out new services that have value to today's sophisticated web based and empowered consumers. One result is an "unbundling" for traditional one-size-fits-all real estate services for consumers who want additional control over real estate transactions and their associated charges. If you're willing to take on some tasks traditionally performed through agents and brokers, you could receive lower transaction prices. You might benefit from the following emerging alternatives: Fee-for-services "Consumers really want assistance from real estate professionals, but don't want to pay for it comprising traditional commissions, " says a la Carte housing Pioneer Julie Garton-Good. Garton-Good has been preaching the fee-for-services gospel for more than 20 years. As the name implies, you possibly can choose which tasks you feel comfortable performing and retain qualified real estate professionals to do the rest. Many traditional real estate property brokerages are beginning to offer a more menu-based service prepare. For example , you may not mind listing your home and holding clear houses, but you may want assistance with contracts and closings. One-stop shopping In response to dwindling margins and the rising rates of technology and lead generation, some real estate companies want to combine traditional and Web-based services to provide consumers one single source for all their real estate needs. One-stop shopping websites generally provide or partner with lenders, insurers, heading companies, real estate attorneys and others to facilitate all aspects of buying and selling. In addition , some sites are adding home-improvement along with related services to stay in touch with consumers between buying or selling transactions. Web-based discounters Although many Web-based real estate companies flamed out in the dotcom era, scores of new providers have emerged to take their place. By offering precise services such as flat-fee MLS listings, buyer rebates and even AVM tools, these sites are appealing to independent individuals and sellers who prefer to take a more active place in transactions. In addition to listings, some sites also deliver how-to articles and advice for those who choose to go the software alone. Tradition + technology + turbulence = chances So , given the trends, changes and ongoing market place evolution, what can independent buyers, sellers and investors expect to have in this new era of real estate? o The Web along with other technologies will continue to evolve and transform the $1. 3 trillion real-estate industry. Technology will continue to slow up the time, expense and complexity of manual processes, not to mention increasingly sophisticated search and valuation tools will execute a more strategic role. o Free and low-cost properties resources will continue to be available and even multiply on the Web. In realty, knowledge truly is power. Consumers will try to use the power to gain more control of the real estate process and also subsequently expect to be compensated in the form of reduced and fee-for-service commissions. o The role of traditional real estate brokerages will evolve as Web-enabled consumers become more knowledgeable. The likely will trigger some restructuring and consolidation in traditional brokerages, but will also drive the development regarding innovative new practices targeting online and empowered consumers. Realty professionals will focus more on promoting their localized knowledge and industry expertise, while consumers will execute some buying and selling tasks on their own. o Traditional real estate fees and profitability levels will continue to face downward force from various sources. The future will be profitable for brokers that are able to extend their core expertise of neighborhood plus industry knowledge into flexible new consumer-centric offerings. to The traditional high-touch, full-service real estate agency is evolving, not even disappearing. Real estate professionals who provide exceptional service as well as value to their customers will always be in demand. You now can find further real estate knowledge, tools and resources on the Web than ever before, helping you to buy and sell with increased confidence. For real estate professionals, reinventing the industry means making hard decisions, changing processes and curbing new opportunities. But for consumers, reinvention in real estate is actually a winner, hands-down.