Perspective: Online listings remodel real estate business

Part 4: The MLS Internet revolution

Editor’s note: This is the last of a four-part series on how online home listings have changed the real estate industry. (See Part 1: Listings on the Web: From radical idea to ubiquity, Part 2: Online listings attract horde of innovators and Part 3: The risks of online home listings.)

Every month from around the globe 25 million people click on real estate URLs and search millions of homes on the Internet. The number of Web sites offering direct access to the MLS has proliferated nearly as fast as the number of people searching the Web for houses. Thousands of agents, brokers, technology companies, lead businesses, lenders and the venerable Realtor.com offer direct access to the entire MLS online.

The MLS genie is out of the bottle and there is no turning back. The event has created a real estate marketing explosion, as well as a quagmire for an industry that for 100 years held listing data as tight as a mother holds a young child’s hand in an overcrowded shopping mall.

The challenge for the industry now is to figure out the ultimate consequences of this revolutionary phenomenon, which confronts a business that has stayed much the same for decades. 

One thing is certain, the unveiling of the MLS to the public will forever change how real estate is bought and sold. The early changes are already profound.

Once entirely dependent on real estate agents for locating and visiting properties, consumers increasingly operate without the agent, performing all of their home shopping due diligence at Web sites and leaning on agents only at the offer stage and closing. It makes home buyers even more elusive in the cat-and-mouse game that agents have played with them for so long. But also, loyalty and commitment are waning in this new relationship, much like what an extra-marital affair does to a marriage. 

Home sellers also are winning, obtaining more options for their home’s global Internet exposure and taking advantage of alternative business models, which have taken from an already declining commission structure for most agents.

Of course, real estate agents save on gas and time and are freed from schlepping home buyers around town, but that may be a big price to pay for the more fundamental changes in the housing market brought on by the Web.

The most profound shift may be the decrease on the buy-side commission split. While a tight listing market explains this trend, the Web, in effect, is becoming a de facto buy-side agent, which could fundamentally alter the commission structure.

The economic notion is simple: buyers are doing more work themselves, which reduces the value of the buy-side agent and gives the sell-side listing agent more clout to cram down the buy-side split. This gives the sell-side agent more economic wiggle room to reduce the commission and become more competitive in the market for listings.

These arguments suggest that listings on the Internet are somehow bad. Online listings access may indeed challenge the industry and its role but the consumer benefits far exceed the downsides.

The one area in which everyone wins is the amount of exposure a home going on the market now gets, which raises enthusiasm and increases the price–all helping to keep the market strong. Also, home buyers now can instantly scan the entire listing database, which gives them a wider view of the market and more options that realistically fit their budget and their needs. This market matching only helps to spark more sales.

Listings on the Internet more than anything else have spawned the proliferation of innovative technology and successful online companies.

Central to IPO-ready ZipRealty’s success is its ability to process buyers through its home listings technology. The fastest growing product for HouseValues is its “Just Listed” product, which alerts prospective buyers when homes matching their criteria become available on the MLS.

Alternative business models also are getting in on the action as they offer discount fees for limited services and take advantage of the consumer’s more self-reliant approach, which reduces the overhead and makes limited service more economical.

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