(This is Part 1 of a two-part series.)

Real estate is being transformed by changes so profound that it may rip the industry apart. If you’re still hanging on to 20th century prospecting and by referral techniques as the only tools in your lead-generation toolbox, the coming changes may wash you out of the business if you are unwilling to adapt.

The rate of change in our industry is staggering, yet it doesn’t begin to approach what is coming. The riptide of change threatens to put you out of business if you are unprepared. This will be especially true for older agents who still struggle to answer e-mail, who have never sent a text message or who have never played an online game.

The Lead-Generation Shootout

If you’re wondering why your phone is not ringing, why your print advertising seems to have a decreasing rate of return or why your referrals have dried up, the explanation is simple: Many of your lead resources have moved online. It seems that a battle is shaping up among the titans in the industry. When Prudential kicked Zillow and Trulia out of its San Diego conference, one has to wonder whether the folks at Yahoo! did some arm twisting.

Not only are the major search engines vying with each other, but companies such as HomeGain, HouseValues and Zillow are competing with major real estate companies in a battle to capture more Web visitors. The primary goal is to either generate referral fees and/or advertising revenues.

At the recent Really Awesome Women in Real Estate conference, Andrew Coleman of LeadQual.com and Brendan King of Point2Agent.com had a spirited discussion about how lead generation will occur in the future. Coleman argued that if you’re not spending at least $2,000 per month in pay-per-click advertising, either as a broker or an agent, you will be better off buying leads from companies such as HomeGain that have the wherewithal to generate top search-engine placement and deliver leads in real time.

In contrast, King argued that consumers prefer to deal directly with the listing agent rather than be referred to an intermediary. King’s position was that sites such as Point2Agent that syndicate their members’ listing advertisements to multiple sites are a much more viable model because they send the consumer back to the listing agent. This seems to fit with Google’s business model as well; I recently spoke with the company’s head of local advertising, Justin McCarthy, who told me that Google’s goal was to put people who use its search engine in touch with the best source of information for a given search. When Google fails to do this, its users do not complain to the people who received the lead — they gripe at Google. From an industry perspective, the best person to handle this lead is the listing agent, not those who pay to receive leads from other agents’ listings.

The Online Price-Evaluation War

A different battle is also emerging on the online property-evaluation front. The emergence of Zillow has forced industry sources to provide comparable sales information. However, shame on Zillow for not doing a better job with its valuation estimates. Any novice real estate broker knows that you do not comp a 3,500-square-foot property with a 1,500-square-foot property in a ZIP code five miles away from the subject property. Even after repeatedly entering updated information for my own house on Zillow, the results continue to be off by almost 20 percent from the recent sale price of my property. The changes I made to the bedroom-bath count on repeated occasions never showed up on the Zillow site. The same problem occurred with my property in California. The challenge is that they are not pulling comparable sale information from my subdivision nor are they using comparable sales that even remotely resemble either of my properties.

Coldwell Banker has implemented its own online evaluation tool in response to Zillow. Although the site could not divulge sales prices because Texas is a nondisclosure state, the comparable sales data was accurate for my California property, even though it gave me a $600,000 range in terms of the price. At least Coldwell Banker is in the game and doing a better job at providing accurate comparable sales compared to nonbrokerage competitors such as Zillow.

Realtor.com had accurate comparable sales, but the sales data were over six months old. It’s puzzling that Realtor.com can make disclosures that Coldwell Banker is prohibited from doing so in Texas. Surprisingly, Moveup.com continues to be the most accurate for the properties that I have checked over the last 18 months. Although it could not provide sales data for Texas, it did hit my California property value exactly where the comparable sales data suggested.

The challenge for agents is how to cope if a client relies on an inaccurate online home valuation. Zillow continues to generate more eyeballs than any brokerage site with the exception of Realtor.com and is now beginning to even surpass them, according to an Alexa.com traffic analysis. Whether the valuations are too low or too high, they create an unrealistic expectation for both buyers and sellers. Properties priced too low create negotiation barriers for sellers who are accurately priced but whose potential buyers are looking at an online valuation amount that says the property is worth substantially less. When the online property value is too high, sellers run the risk of overpricing their property, which can cost them dearly in terms of market time and having to lower their price.

All of these companies are competing for your clients. What can you as an individual agent or broker do to compete? Look for next week’s article to learn more.

Bernice Ross, national speaker and CEO of Realestatecoach.com, is the author of “Waging War on Real Estate’s Discounters” and “Who’s the Best Person to Sell My House?” Both are available online. She can be reached at bernice@realestatecoach.com or visit her blog at www.LuxuryClues.com.

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