Technology is sweeping across the economy ? or more precisely, technological change is what’s doing the sweeping.? It?s affecting every nook and cranny of the economy, and how we do business. It?s been having an effect on the real estate business for several years; Zillow and Craigslist are two examples of how this is playing out. People are no longer so quick to head to their local real estate agent whenever they’re interested in buying a new home. More typically, they at least scope out the market on the web before they take that step, and very often they find what they?re looking for without even using the services of an agent.
Even the real estate business itself is employing technology to make their business more efficient. Realtor.com and the fact that virtually every real estate agency in town has its own website testify to this.
But the ultimate change is coming as well: technology will ultimately turn the real estate business into a dinosaur. If you doubt this, just consider what the Internet has done to the travel industry – how many people do you know?who are?making a living as travel agents these days? Real estate agents may be the next profession to go down that path into oblivion.
Here are a few reasons why?
The Internet – A Game Changer in the Real Estate Universe
We already know that the Internet is having a profound effect on the real estate industry. Practically every piece of property in America that is listed for sale now appears?somewhere on the web. Where once the many regional multiple listing services (MLS) were a near monopoly on what was for sale, today that?s just one piece of much larger puzzle.
Not only is virtually every MLS listed property on the web, but so are a growing number of for sale by owner (FSBO) properties. When you combine MLS and FSBO properties, the web now represents the largest comprehensive real estate database in the country.
Buyers Increasingly Go to the Web First
Home buyers are increasingly aware of the growth in the inventory of properties for sale on the Internet. They?re responding to this by increasing the beginning of their search on the web. And increasingly, they’re bypassing on?real estate agents, and buying FSBO properties direct from the owners.
At present, the flow of direct buyers is relatively small. But as we all know, just 10 years ago online sales of virtually everything?was nothing more than trickle. Today however, people are buying everything on the web, including cars, and yes ? even houses.
It’s?not inconceivable that the real estate industry will no longer have control over the volume of housing inventory that they have had in?the past, and like the travel agency business, they?ll become obsolete.
This isn’t a radical prediction either. If you look at what?s happening on Craigslist, eBay and other trading sites, the public is becoming increasingly comfortable dealing direct with sellers. Direct business is fast becoming the new normal.
Some Buyers Don?t Want to Work With Real Estate Agents
How do you feel about going into a car dealership to buy a new or used car? It?s a high-pressure situation?that a lot of people?would prefer to avoid. And increasingly, they are. Many people are now shopping for cars online, and negotiating the price and terms before even getting involved in a face-to-face meeting. They’re also now increasingly buying cars directly from individual sellers, or even from car rental companies, all?selling cars for much lower prices than the dealers are.
So it is with real estate as well. When people?work with a real estate agent, they know the agent is on commission, and has a goal of selling?a house in order to earn a commission. The buyers don?t want to be sold anything ??they simply want?find what they?re looking for. Not everyone is comfortable?that a?real estate agent is the person who will make that happen.
And let me relate my own personal experience with real estate agents from my 15 year mortgage career. As a mortgage originator, I often felt?that working with real estate agents was counterproductive. Not just for me, but mostly for the buyer. The agents primary concern was typically not for the buyer, but for the sale.
I believe that a lot of buyers are able to sense that.
It?s the Commission Stupid!
The typical real estate sales commission is 6% of the purchase price of?the property. There are some firms that are discounting this rate, but doing so is also problematic. If the property is?listed for say, 4%, real estate agents will generally avoid showing the property, preferring to showcase the higher commission properties ? this is another example of how agents are not always primarily loyal to the buyer.
If you?re a property seller, paying this commission is not in your best interest. This is particularly true in any market areas around the country where property values have not returned to their pre-2008 peak levels, and a lot of homeowners are dealing with very slim equity positions.
A 6% commission may not be a big factor if you bought your house in 2000, for $300,000, and today it?s worth $400,000 and you have $200,000 equity in it. A 6% commission will be $24,000 ($400,000 X 6%), which will reduce your equity to $176,000, and that?s still a good chunk of change to walk away from the closing table with.
But let?s say that you bought your house in 2005, and paid $300,000 for it. Post financial meltdown, the house is still worth only $250,000, and you owe $200,000 on it, giving you a net equity of $50,000. But if you pay a 6% commission of $15,000 ($250,000 X 6%), your equity goes down to $35,000. That?s a lot of money on that equity position.
If you could sell your house without using a real estate agent, you would protect that equity. For that reason, you?ll be highly likely to least try to sell the house as a FSBO to preserve your equity.
Buyers are also aware of the real estate commission. They know that the commission means that a seller will be less flexible in negotiating the final price. They know that there?s likely to be more negotiating room with a FSBO. This is another reason why they would pass up working with a real estate agent.
Selling Your House Yourself Has Never Been Easier
As with just about everything else in the economy (okay, healthcare is probably the exception), it’s?getting easier to go DIY (do-it-yourself)?all the time. That?s already true when it comes to buying a house. As we already discussed, FSBOs are widely available on the web, along with realtor listed properties. And buyers are becoming more comfortable with direct negotiating with sellers.
That trend will only accelerate in the next few years, as it has?in virtually every other business that has been touched by the Internet.
If you are in a relatively thin equity position on your property, or if you just don?t feel like splitting your equity with a real estate agency, there are more ways to sell your property without a real estate agent than ever before.
You can get accurate valuation of your property on the web. You can also get any contract forms and marketing material you need on the web. That includes professional looking ?for sale? signs. You can also get plenty of advice during the process, insuring that everything goes as smoothly as possible. And you won?t have to deal with a real estate agent, or pay the 6% commission.
There are even online services out there that can provide you with everything that you need to make it all happen. An excellent site I?ve become aware of in recent weeks is Listing Door.com (No, I have not been compensated for this endorsement – the rising cost of living has me constantly searching for less expensive ways to do everything; if you’ve read my other posts, you will know that I’m of the opinion that the economy is changing in fundamental and radical ways). This is a site designed by real estate professionals for the property seller who wants to sell without using a real estate agent. They have several packages available, and none are more than a few hundred dollars. With the services they provide, you?ll have everything you need to sell your home yourself. And you can save many thousands of dollars in process.
These days, houses are selling on the Internet, some of them are even being sold on various social media. People are keyed into these venues, and they’re getting more comfortable with them all the time. The web presents an opportunity to buy and sell just about anything you can think of, and it?s also increasingly a place where you can make a living. And now it?s also a place where you can buy or sell a home, and do so at substantial savings.
Have you considered buying or selling a house on the internet?
I’m actually going through this right now! For a brief period of time I considered getting a Redfin agent since I felt like I could do the booking stuff myself, but after further consideration and after talking to people that I know who ARE in real estate (though, not in my city) I’ve come to the conclusion that the 3% I might get the buyer to kick back to me for not having to pay an agent’s fees is probably going to be eclipsed by the fact that I’m a terrible negotiator and am sure to be shaken down without an agent by my side.
Hi Taylor – It’s good to know your limits. But a lot of people can negotiate, particularly if something as large as your house is involved. And for what it’s worth, you’ll be negotiating even if you list the house with a real estate agent. All price negotiations are handled through the property seller – what you’re paying the fee for is to have the agent as a go-between. That’s a huge fee to pay for that service. Do you know anyone who could handle the fact-to-face negotiations if you don’t use an agent?
One other factor to consider on negotiations through a real estate agent…remember in the article I said that an agent’s primary objective is making the sale? They may be more willing to compromise on the price (sell for less) to make that happen.
A common realtor game is to accept an overpriced listing (to get the listing) but then to come back down to reality (or below it) when an offer comes in. Negotiations are tough no matter who the front person is. It’s the nature of business.