Have you ever tried selling a house? If so, you probably hired a broker and paid a handsome commission for their services. But did you know that commissions for real estate brokers are trending downward? So much so, in fact, that many real estate offices are encouraging their brokers to get more involved in the financing portion of home sales in order to remain profitable. What could be the cause of such turmoil in the real estate industry? The Internet, of course!
To oversimplify matters, brokers act as classic middlemen, bringing buyer and seller together. The broker typically earns a 1.5%-3% commission on every home sale the broker engineers. These commissions are usually included in what are known as closing costs. Here's an example:
Joe, who's represented by broker A, wants to sell his house for $200,000. Sally, who's represented by broker B, wants to purchase Joe's house. Typical closing costs on this deal would equal 6% of the total sale price, with 3% going to the buyer's broker, and 3% going to the seller's broker. Usually, the buyer and seller split the closing costs. This means that Sally will be paying $206,000 instead of $200,000, and Joe will receive $194,000 instead of the $200,00 he seeks.
If Joe and Sally had managed to find each other without the assistance of brokers, Joe might have received $6000 more for his house, and Sally might have been able to pay $6000 less for the home. Until recently, such a scenario would have been quite unlikely. Relatively few sellers have the resources to find a buyer without the marketing assistance of a talented broker. And very few buyers have the time or knowledge needed to select a home in a new and unknown territory without at least some expert guidance from a broker who knows the area.
But the Internet is changing all that. Many buyers and sellers are finding the Net to be an ideal marketplace for real estate. Because homes advertised on the Internet are available around the clock and around the globe, buyers can view information about homes in other cities, states, or even countries at the time that is most convenient to them. The market is growing rapidly, as well. Over 100 million users have Internet access today. By 2003, an estimated 510 million potential home buyers will be online.
Many sites have emerged to connect real estate buyers with sellers. Microsoft's Home Advisor is one of the largest sites, with neighborhood-by-neighborhood comparisons of schools, crime, and other demographics; home and apartment listings; loan prequalification; and more.
Owners.com is a site that only lists homes being sold directly by homeowners. Buyers can search the listings by county, state, price, or other parameters. Excite's 'By Owner' Listings offers a similar service.
Many realtors are awakening to the fact that the web is fast changing the way homes are sold.
"I don't believe that the web will eliminate the need for brokers," said Jenny Stanford, a California realtor. "Brokers do more than help you find a house. We're constantly researching market conditions and staying abreast of federal, state, and local laws governing all aspects of home sales. We help protect buyer and seller from litigation, find qualified inspectors, and handle all the paperwork. The Internet doesn't change any of that."
"Some brokers fear the Internet," Stanford added, "but I see it as an opportunity. Those of us who know how to use the Internet to educate people on the largest investments they'll ever make will enjoy tremendous success. The Internet allows realtors to reach people who would otherwise never have known about us. Those of us who ignore the tremendous marketing power of the Internet will suffer."
"I think the Internet will increase competition between brokers ," said Michael Peorio, an Illinois real estate broker. "That competition will probably lead to lower commissions and more services for both buyers and sellers. But do I think agents will be eliminated from the home sale equation? Absolutely not."
Indeed, most brokers are already using the Internet as a supplementary marketing tool. realtor.com is a cooperative venture containing over 1.2 million home listings submitted by the worldwide membership of the National Association of Realtors.
So what does the future hold for realtors? Unfortunately, technology doesn't have a heart or a conscience. Every day more and more people are buying products and services directly from online sources. In order to prosper in the era of the Internet, realtors will need to expand their services and offer tangible benefits that an online service can never reproduce.
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Virtual Real Estate by Robert Viers