Last month I wrote a post called "Realtors Running Scared" and in it I basically said that I saw the need for realtors diminishing, at least from the seller’s standpoint.  Today the New York Times has an interesting article that features two new services that should cause more than a few realtors to change their underwear. From the article:

One site, Zillow.com,
which will be introduced today, will help consumers obtain more
accurate real estate sales information — to the consternation of some
real estate agents.

A smaller site, Redfin.com,
introduced an unusual new service last week that might be even more
disruptive to the real estate industry: the feature automates the
process of bidding on a house online.

Of the two I find Zillow more interesting and much more of an imminent threat to realtors.  As I said in my first post I think that realtors’ real value is in the matchmaking process (i.e. helping buyers find the right house).  I honestly think the only real value they have traditionally offered sellers is a place on the MLS, and with sites like Zillow the MLS is quickly going to lose market dominance if it hasn’t already.

On the other hand buying a house is a highly stressful and intimate affair.  I don’t see bidding for houses online as a today or tomorrow proposition so I’m not real big on Redfin’s prospects, at least as I understand what they’re trying to do.  I’ll say it again: realtors that want to thrive should focus on offering a high-touch service to buyers and move away from worrying about listings.  They should also be open to accepting lower commissions from sellers because in the very near future that will probably be their only option.  Heck they might even want to move away from the commission model to a service fee model, although I have no idea if that’s allowed under existing regulations.  It would be worth looking into though.

There’s an interesting item at the Business 2.0 blog about a website in Madison, Wisconsin for people selling their own homes, or in the real estate vernacular it’s a site of "for sale by owner" (FSBO) properties.  Here are the critical numbers they cite:

• The site has captured about 20% of the county’s listings.
• If agents had sold all the properties listed on the site and had a standard 6% commission the amount paid to the realtors would have been $17.3 million.
• The site collected $300,000 for those listings.

If you want to check out the site you can find it at FSBOMadison.com.

Well here’s what I think.  Traditionally, the biggest advantage of hiring a realtor as a seller was access to the MLS (multiple listing service).  By using the realtor’s service you were broadcasting the availability of your property to the world at large much more quickly than you could do it yourself.  Now, though, with FSBO services and other online tools like CraigsList you can get the word out there very quickly all by yourself.  The realtors probably instinctively know this, but don’t want to admit it.  They better wake up though, because their biggest asset on the sales side is disappearing. Agents will tell you that they also give their clients advice on prepping their property for sale (empty those closets, unclutter your kitchen, etc.) but you can get the same info from a "Selling Home for Dummies" book.

As a buyer, especially if you’re moving into a new area, the biggest advantage of using a realtor is their knowledge of neighborhoods.  Celeste and I found this out when we moved from DC to Winston-Salem two years ago.  We did a lot of online research before we started working with our realtor but it became pretty apparent that we needed the services of someone who could match our needs to a neighborhood.  In other words we needed a highly specialized service and we definitely benefited from our agent’s service.  (BTW, if you need a good agent I highly recommend MaryLee Hester of Prudential Carolinas Realty).  I don’t see that advantage disappearing any time soon.

My prediction is that the real estate business is going to change.  Smart agents will not worry as much about being the listing agent and will instead focus on providing services to buyers.  They will embrace the evolving FSBO market by being flexible.  The really smart ones will help get one of the dirty little secrets out about real estate: selling is easy.  Most people don’t know that it is up to the buyer to get a contract written up and submitted to the seller for consideration AND that you can get a contract written up by a real estate attorney for a few hundred dollars.  And the new FSBO sites and online listing services will take care of the marketing.

(Disclaimer: As always there is the possibility that your house is a pig, and even if you put lipstick on it you’ll still have a pig.)

Smart agents will focus on helping their clients find the perfect home and then provide them with a list of real estate attorneys just like they do with plumbers, general contractors, etc.  They will mine the FSBO sites and CraigsList for leads, just like they’ve traditionally used the MLS. They will also concentrate on educating the FSBO market to the advantages (larger market, contract sales force) of accepting visits from realtor-represented buyers even if they have to give up 1-3% commission. 

To give you an idea of what I mean, when Celeste and I sold our first house a few years ago I was hammering the FSBO sign in my front yard when our phone rang.  An agent happened to be driving by and asked if we would let her bring a client by to see the house.  "Sure," we said, "but we’re only paying a 2% commission."  She jumped right on it, because in reality she would have gotten only 3% anyway if we had a listing agent. 

Celeste and I sold all three of our properties without an agent,
and I can tell you that we worked harder trying to buy our house in Winston-Salem than we did to sell all three houses combined.  Admittedly we sold in a hot market, but I still think that in the end selling is easier than buying, and smart realtors will ackowledge that and focus on servicing home buyers.

My final point would be that they should not abandon listings totally.  They should just recognize that they’ve lost the monopoly, and in fact they should consider listing their properties on things like CraigsList themselves.  In other words they should really do the marketing that they’ve only been paying lip-service to up until now.  Still as a seller I don’t know that I’d be willing to give up 3% for that kind of service so they’d definitely have to consider giving up a point or two there.