Realtors: Change with us

Last year Beth and I bought our first house.  We used a Realtor.  Our experience was great, and I would recommend my Realtor, Rhonda Brewer, to anybody looking to buy a home in the Blacksburg area (and I have recommended her to a few co-workers).  Rhonda led us through the home buying process from start to finish.  She helped us locate properties, tour them, helped us make the winning offer in a competitive bid situation, and guided us through all of the legal crap.  Thanks Rhonda!

However... if there had of been an electronic alternative available for at least part of the buying process, I would have used it.   This is nothing against Rhonda, or my uncle Den who is a Realtor in Rhoad Island, or any Realtor for that matter.  I just think your market needs a disruptive company to come in and shake things up a bit.  I was surprised at how lo-tech the home shopping tools available are, and how closed of a system the MLS is.  Home listings are posted on the MLS for licensed Realtor eyes only several days before they are available on the public sites.  Sometimes homes are sold before they ever reach the public listings.  Come on this is 2006!  Put this information directly in the hands of your customers and find a new way to make money from it.

Also, it sucks that you have to go to a completely separate web site to find information on historical home sales in the neighborhoods you are shopping in.  Whoever opens up the MSL and integrates this data will make a killing - somehow.

Today I read about what Redfin is doing in Seattle and San Francisco.  They have opened up the MLS and integrated historical sale data, and mapping software.  And if you want they'll even help you make an offer and help you through the legal crap.  Awesome.  Realtors are up in arms over there and sending Redfin employees threats and other nastiness.  But they shouldn't be.  This was bound to happen.  The information should be publicly accessible, just like it is in every other efficient market.

Realtors: If you look at this change as something that is going to steal your job away, it will.  If you embrace this change and change with it, then you will survive and even gain customers.

I do not see Redfin's make-an-offer / legal-representation service as an alternative to using a Realtor.  Realtors know their local markets well, know the neighborhoods and may always do better than an online service at this.  Redfin's service instead is an alternative to buying a home without a Realtor, which a lot of people do.  Redfin is trying to capture a 1% commission from the home sales that are not currently giving Realtors any commission.

My predictions:

(1) Redfin or a similar company will take this business model nation-wide within the next couple of years.

(2) Traditional Realtors will be bitter about this and will quickly become obsolete.  The older generation of home buyers will continue to use Realtors, but the demand for traditional Realtors will shrink and there will be less of these folks around.

(3) Progressive Realtors will accept and embrace this change and look for ways to capitalize on it.  They will point their customers to the online tools, help them use the tools, and be there for them when it is time to make an offer.  Realtors will do less per sale, but they will be able to work more efficiently with their clients by letting their clients do the searching for what they want, rather than they Realtor doing the search as a middle-man.

(4) The buying agent commission will decrease and/or buying agents will start giving cash back to the buyer as Redfin is doing.  Currently it is 3% of the sale price.

(5) More people will use a Realtor when buying a house because of the commission decrease.

(6) Similar change will occur on the seller-side, but less rapidly because it is not nearly as needed.

Comments

[Jason Griffith]

Hi! I'm the developer in charge of Redfin's maps and overlays.

Excellent post, I just wanted to make one correction. We don't use Google maps here at Redfin... It's all in-house.

[Ryan]

Interesting post, but I think your predictions are wrong. I work at a tech company who primarily sells their services to real estate agents.

First of all, I agree whole-heartedly that Realtors need to join the 21st Century. They are WAY behind and they fight technology. This is especially true of the MLS systems, which are generally run by a group of older Realtors that have no understanding of technology. That's not always true, but it's true often enough that the generalization works.

However, I don't think that Redfin, Zillow, FSBO are going to meet anything other than a marginal success. What they will eventually do, though, is to allow the consumer to get slightly more educated, and reduce the outragous 6% commissions that Realtors currently charge on home sales. Predictions 4, 5, and 6 are slightly off. I think the changes will happen from the listing agent before they happen to the buying agent. Remember that the 3% commission that the buyer's agent gets is paid for BY THE SELLER of the home.

Also, point 3 is invalid, because there's no such thing as a progressive realtor.

Overall, though, I agree with the sentiments of your post. Realtors need to stop fighting technology. Kinda reminds me of RIAA and MPAA.

[phd]

Saying realtors will quickly become obsolete is like saying that online legal forms render an attorney a waste of money. It might cut into bad real estate agent's commissions, but I doubt it will harm the good ones. Who has time to sell a home themselves, anyway?

[Bill Boebel]

Jason:

> We don't use Google maps here at Redfin... It's all
> in-house.

Sorry about the mistake. I have corrected the post.
---

Ryan:

> I think the changes will happen from the listing agent
> before they happen to the buying agent. Remember that
> the 3% commission that the buyer's agent gets is paid
> for BY THE SELLER of the home

Yes, but by empowering buyers with more tools/information, it makes the buying process more efficient, decreasing the buyer agent's commission - directly benefiting the seller since they have to pay out less commission on the sale.
---

phd:

> Saying realtors will quickly become obsolete is like
> saying that online legal forms render an attorney a
> waste of money.

I agree that technology won't replace Realtors any time soon in the legal area and touring of homes once a consumer as found ones they are interested in. But Realtors will be less needed in the buyer-seller matching process, which is my main point.

As a consumer I should be able to know immediately when a new home is listed that I might be interested in. Right now it is terribly inefficient. Market efficiencies like this will connect buyers with sellers faster, helping both sides. And will it will even lead to a higher volume of home sales because people who are not even actively looking will be able to casually have instant access to listing information and may come across something that convinces them to upgrade homes sooner than they had planned. Once this technology becomes available, I can totally hear my wife saying "Honey, guess what I found today?"

[Jesse Palmer]

Great post Bill. You made a really good point in that the technology will make "Realtors less needed in the buyer-seller matching process". I just bought my first home and found it myself off of realtor.com. My realtor was great walking me through the bidding and legal process, but I was able to find the home myself online.