Old realtors vs. young Web threat

NEW YORK (CNNMoney.com) -- If there's a lesson to be learned from the Internet, it's that old business models can't rely on past results - just ask your neighborhood travel agent.

Like stock brokerages, travel agencies have watched their customers migrate to do-it-yourself sites like Orbitz and eTrade because of easy service and low charges.

But what about real estate? Agents collect sizeable commissions for what looks like little effort. And now, for-sale-by-owner Web sites promise to eliminate the middleman and put more money in your pocket. So are realtors worried they're going to be replaced by masses of home sellers infected with the D.I.Y. spirit?

"Selling without using a real estate agent is like representing yourself in court," said Walter Molony, a spokesman for the National Association of Realtors.

When NAR reported on selling trends last year, it said 12 percent of homes sold were through FSBO methods and 8 percent though a flat fee listing on a multiple listing service.

That's down from 16 percent in 1999, according to Molony. He attributed part of the decline to competition from other new business models, such as discount and fee-for-service brokers. He also cited the myriad disclosure and legal issues that have made consumers wary about taking on such an important financial transaction by themselves.

But a recent study showed that home sellers in Madison, Wis., along with a little help from an FSBO site, sold their homes for higher prices than their neighbors who used agents.

The report by three economists from Northwestern University and the University of Wisconsin found that homes sold on FSBOMadison.com received an average price of $175,068 during the seven years studied, while homes sold on local multiple listing services (MLS) brought an average price of $173,205. Those averages are essentially equal after taking into account sampling errors.

"The survey validates what we've been saying all along," said Colby Sambrotto, chief executive of ForSaleByOwner.com, a D.I.Y. Web site with a national reach.

"Our business is growing very rapidly with listings increasing 50 percent to 70 percent a year," he said. "We're having 60,000 homes listed."

A NAR report from 2005, however, found that, nationally, FSBO sellers got a median price of $198,200, but those sold through an agent went for an average of $230,000, for 16 percent more.

"That 16 percent always smacked us as not true." said Sambrotto. According to him, NAR's data included "non-arm's-length" sales, such as those made to relatives. And, he said, the mix of properties may have skewed toward lower-priced homes.

Glenn Kelman, CEO of Redfin, a web-based, discount broker that charges a flat fee of $3,000 to list a house, said, "Consumers are a lot smarter than the real estate industry gives them credit for."

According to its own internal studies, Redfin said its buyers paid about 1 percent less than clients working through traditional real estate agents. On top of that, the company rebates two thirds of its commission back to buyers.

The Madison study did find that houses listed with real estate agents sold faster than the FSBO ones, but that stat cuts both ways. It's usually to a seller's financial advantage to make a quick sale.

But, as Kelman said, "Usually, real estate agents are motivated to close deals quickly. Our customers spend a longer time on the market because they are not pressured by agents to deal." That can help sellers hold out for higher prices.

The Madison survey attempted to control for such differences, but it did say that sellers who wanted speed and experience were more likely to go with a broker.

As Web sites take over more and more of the role of the traditional real estate broker, even consumers who need the kind of help provided by full-service brokers are asking why it costs so much.

Said Payam Zamani, founder of real estate Web site, Reply.com, a "broker's role is changing. They're moving into more service, and some clients may be picking and choosing the services they require. The question becomes, 'How much should they charge for that?'"

As to whether more NAR members will change with the times, Molony said, "It's a very entrepreneurial business. People are constantly experimenting with new business models."

Even within NAR, which represents discounters as well as traditional brokerages, Molony has heard of a rise in the minimal-service model.

Still, he said he'd be surprised to see a significant shift in the way the industry operates.

"This MLS model has been working well for a long time," he said.