A new reality for real estate agents
Web-based services such as Zillow and HomeGain have set real estate information free, realtors' commissions are dropping.
(Money Magazine) -- When Cindy Brockwell, 58, and Bill Dailey, 62, sold their townhouse in Reston, Va. in early April, the only real estate agent involved was the one who brought them their buyers.
Instead of a listing broker, they used Internet services including ForSaleByOwner.com to price their house and do all the other things a broker would normally do.
"We decided that the value of the listing agent was minimal," says Brockwell, who found a buyer in just five weeks. The total commission came to 3%.
Up until now: You couldn't really operate in the residential real estate market without access to the National Association of Realtors' multiple-listing service. The monopoly meant that only realtors really knew what homes in your area were selling for. They'd be happy to share the data - in return for the standard 6% commission.
The next evolution: Real estate information wants to be free. An estimate for just about any home's value at any time will soon be available online at Zillow.com, HomeGain.com, RealEstateABC.com and other websites.
Zillow and its ilk are not perfect. Zillow's valuation program, for example, tends to work best for mid-price homes in areas where there are a lot of transactions, less so in neighborhoods where people seldom move.
But the time may come when Zillow is seen as more reliable than human brokers. Like owners, brokers get anchored to higher prices as home values fall, and they have an incentive to inflate estimates to win prospective clients. Zillow has no such biases. If your house is worth $50,000 less than you paid a year ago, Zillow will tell you. It can't be fired.
John Vogel, who teaches economics and real estate at Dartmouth, says the democratization of data spells the end of the 6% commission. "You go to an agent for information," says Vogel. "Free access to it should be a major threat to the brokerage business."
Real estate brokers will still have a role as marketers, especially in tough times like these. But like stock brokers before them, they'll find that as they lose their traditional monopoly on information, they just can't command their traditional price.