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Reinventing Real Estate, Part 2: Online and Empowered Consumers Are Taking Charge and Paying Less

Consumer demand

“By the time they start working with a realtor, Internet buyers are better informed about market conditions and better prepared to take action on the home they want. Fortunately for realtors, these changes don’t have to be detrimental, until they can adjust themselves. new relationship and realize that new style buyers value speed over direction when finding a home.”

– E-Marketers, Internet Home Buyers Are Changing the Rules of Real Estate

Thanks to the Internet and other technological innovations, more real estate information is freely available than ever before. As a result, consumers demand new choices, better services, faster transactions and lower prices. According to a recent NAR study, the number of sellers who say they don’t want to pay a sales commission rose from 46 percent in 2003 to 61 percent in 2004. In 2004, 23 percent of Florida home sellers chose to sell independently. agent, according to Planet Realtor, up from 14 percent in 2003 and nearly double the 14 percent national average.

And Web-savvy consumers demand a high digital IQ when working with real estate professionals. While well-versed in their specific industry technology, real estate professionals are now expected to use laptops, cell phones, digital cameras, personal digital assistants and global positioning systems to communicate with Internet buyers and sellers.

Lower pressure

“If consumers are going to do their home shopping online, they expect to save some money, just like they do for using the self-service route. So they’re looking to online discount brokers and new related companies that are vulnerable. If only clients would use their agents to lower commissions. These business models give clients the idea that they should pay less in commissions.”

Realty Times Columnist Blanche Evans

Traditional real estate commissions, typically around six percent of a home’s sale price, are facing downward pressure from consumers and competition. Some clients claim not to receive traditional real estate commissions:

– Today’s house prices. Years ago, when median-priced homes sold for $25,000, real estate commissions were typically five percent, or $1,250. Today, with South Florida median home prices around $300,000, the cost of a six percent full-service real estate commission is $18,000. Some brokers even charge additional fees to cover administrative costs. When you consider that the average homeowner today sells a home every five to seven years, real estate commissions can have a significant impact on your personal savings and net worth.

– Owner’s equity. When selling properties, most landlords calculate the sales charge as part of the sale price, although commissions are paid out of the owner’s fee. (It’s the difference between the value of your property and the amount of mortgage owed.) Consider this example: You decide to sell a home for $250,000 with 10 percent equity, or $25,000. After paying a six percent commission of $15,000, you are left with $10,000 before any applicable closing costs. In this example, the $15,000 commission is six percent of the sale price, but 60 percent of the $25,000.

– Services provided. According to today’s commission structure, selling a $100,000 home at six percent typically costs $6,000, while selling a $500,000 home costs $30,000. Does selling a more expensive home really take five times as much effort? Your cost is the same whether the agent spends one hour or 100 hours marketing your home. This is one reason why many real estate clients find real estate-for-service so attractive.

Developing alternatives

“Customers want what they want, when they want it, and will go to the most cost-effective source to get it. Why? Because our “one-size-fits-all” approach to working with sellers and buyers is outdated and win.” It allows customers to access the various parts of the help they need at the right time. Therefore, Web .com start-ups provide an eager audience in real estate customers and thus increase sales by owners.”

Julie Garton-Good, Author of “Delight a la Carte: Choosing the Services You Need, Paying What They’re Worth”

Until recently, you had few practical alternatives to the traditional full-service, commission-filled real estate transaction with a broker. Most sellers charge a flat commission for all real estate services, whether they need them or not. Traditional real estate agencies are now faced with the challenge of identifying new services that are of value to today’s sophisticated and empowered online consumers.

One result is the “unbundling” of traditional real estate services for clients who want more control over real estate transactions and their associated costs. If you are willing to take on some of the tasks traditionally done by agents and brokers, you can get lower transaction costs. You can take advantage of the following options:

Fees for services

“Consumers want help from real estate professionals, but don’t want to pay for it in the form of traditional commissions,” says a la Carte real estate pioneer Julie Garton-Good. Garton-Good has been spreading the gospel of fee-for-service for over 20 years. As the name suggests, you can choose which tasks you feel comfortable performing and hire qualified real estate professionals to do the rest. Many traditional real estate brokerages are beginning to offer a more menu-based service plan. For example, you may not consider listing your home and holding open houses, but you may want help with contracts and closings.

One-stop shopping

In response to shrinking margins and rising costs of technology and lead generation, some real estate companies are trying to combine traditional and Web-based services to provide a single source for all their real estate needs. One-stop shopping sites often provide or partner with lenders, insurers, title companies, real estate attorneys and others to facilitate all aspects of buying and selling. Additionally, some sites add home improvement and related services to keep customers connected between buying and selling.

Web-based discounts

Although many Web-based real estate companies burned out during the dotcom era, many new companies have emerged to take their place. By offering targeted services such as paid MLS listings, buyer fees and AVM tools, these sites appeal to independent buyers and sellers who prefer to take a more active role in transactions. In addition to listings, some sites also offer articles and advice for those who choose to go it alone.

Tradition + technology + turbulence = opportunity

So, given the industry’s constant trends, changes and development, what can independent buyers, sellers and investors expect in this new era of real estate?

o The Web and other technologies will continue to evolve and transform the $1.3 trillion real estate industry. Technology will continue to reduce the time, cost and complexity of manual processes, and search and evaluation tools will increasingly play a more strategic role.

o Free and affordable real estate resources will continue to grow on the Web. In real estate, knowledge really is power. Clients will try to use their leverage to gain more control over the real estate process and then expect compensation in the form of reduced commissions and service fees.

o As Web-connected consumers become more knowledgeable, the role of traditional real estate brokerages will evolve. This possibility will lead to some restructuring and consolidation of traditional brokerages, but will also drive the development of new innovative practices aimed at online and powerful customers. Real estate professionals will focus more on developing their local knowledge and industry expertise, while consumers will perform some of the buying and selling tasks on their own.

o Traditional real estate commissions and profitability levels will face downward pressure from various sources. The future will be for brokerages that are able to expand their core expertise of neighborhood and industry knowledge into flexible new client-centric offerings.

o The traditional high-touch, full-service real estate agency is evolving, not disappearing. Real estate professionals who provide exceptional service and value to their clients will always be in demand.

Now you can find more real estate knowledge, tools and resources on the Web than ever before, allowing you to buy and sell with more confidence. For real estate professionals, industry innovation means making difficult decisions, changing processes and managing new opportunities. But for consumers, reinvention in real estate is successful, hands-on.

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