From the Multiple Listing Service (MLS) to personal networks, the real estate industry thrives on the timely dissemination of information. Until recently, real estate professionals were the exclusive custodians of that information, and they held it close to the vest so that prospective buyers and sellers had to seek them out.
But then the Internet changed everything.
“For the past 200 years, real estate professionals have basically controlled 90% of the transaction,” says Rick Sharga, executive vice president of Auction.com. “The Internet has flipped the model upside down and put the customer in charge.”
Information Technology’s Impact on Real Estate
One of the first times that information technology affected the real estate industry was when Realtor boards automated their regional multiple listing services in the 1980s. Member brokerages could access listings, recent sales, tax information, and other property details online through dedicated computers in each office.
Even when the World Wide Web became accessible to the general public in 1991, real estate professionals still marketed their services and listings through classified ads in newspapers and specialized industry magazines.
For two centuries, classified ads kept newspapers solvent, and real estate ads made up a large share of that ad revenue. But newspaper publishers couldn’t make online classified advertising work from a financial standpoint, and as they increased their prices for classified and display ads, real estate brokerages turned to other, more cost-effective online service providers.
The real estate industry quickly figured out that online exposure was much broader and much more economical than anything they could do in the newspaper. The launch of Craigslist put the final nail in the coffin for classified advertising in newspapers, Sharga says.
By then, the explosion of online real estate information was well underway.
A Paradigm Shift for the Real Estate Industry
Just as it disrupted the financial services, travel and automotive industries, the Internet—and its ubiquitous accessibility worldwide—caused a major paradigm shift in the way the real estate industry transacts business.
“Since the beginning, one of the real estate industry’s biggest value propositions was that it had the list of what properties were for sale,” Sharga says. “Internet companies publish all that information and push it out to a broad audience.”
Real estate listings moved from off-line listings available only to real estate professionals to online listings on major Internet portals such as AOL Real Estate, Yahoo! Real Estate, and MSN House & Home (now housed in its own section under MSN Money).
“The major portals generated a tremendous amount of traffic providing real estate information to people buying and selling houses,” Sharga says. “Eventually, that led to the development of real estate portals.”
Leveling the Real Estate Playing Field
The real estate industry took the challenge posed by the Internet seriously, and decided to use the listing data already housed by MLSs all over the country to beat third-party information providers to the punch. And so they established their own portal: Realtor.com, which launched in 1995.
“Realtor.com had the lion’s share of real estate traffic, outpacing the Internet portals,” Sharga said. “Then you had real estate sites that came out with specialty offerings, like RealtyTrac with its previously unpublished foreclosure listings, and HomeAdvisor, with lists of prescreened and customer-rated service professionals.”
Consumers’ appetite for online real estate information became insatiable. The more they got, the more they wanted, and they began steering the demand. This led to a fundamental shift in the industry—until now, Realtors and the MLS had controlled what data was presented, and how it was published. But consumers wanted information that the real estate industry didn’t necessarily have much interest in displaying, such as homes that were for sale by owner, and home price estimates, which local Realtors had historically provided to buyers and sellers.
New companies cropped up, seemingly overnight, to provide the kind of information—and the kind of online user experience—that consumers were demanding, leveling the playing field in the process.
ForSaleByOwner.com published a national list of homes being sold without a Realtor (or a Realtor’s 6% commission). NewHomeSource.com provided information on new and under-construction homes across the country. Zillow launched its free home price “Zestimate,” and a massive database featuring virtually every home in the country—not just properties currently for sale. Other major players, such as Redfin and Trulia, competed with Zillow for consumer traffic by offering more and more local market information, home search tools, online communities, and dynamic user interfaces.
The rest, as they say, is history.
The Next Evolution for Real Estate
The next generation of home buyers has grown up buying and selling everything online, from clothes and shoes to televisions and cars. Eventually, they’ll want to buy real estate online, too, experts say.
“We’re now seeing the last step in the evolution from informational sites to transactional sites,” Sharga explains. “That’s where companies like Auction.com come into play. I believe it’s inevitable that within 10 years the majority of real estate transactions will be completed online. It’s what the next generation of home buyers will demand.”
Jon Pinto, the broker and owner of Realty World/John V. Pinto & Associates in Napa, Calif., acknowledges that even the paradigm for conducting a property search is very different from what it used to be, thanks to today’s technology.
“If consumers use the Internet properly, they don’t even have to get out of their pajamas,” says Pinto, who has been in the real estate industry for more than 40 years. “You can look at a satellite view of the properties to see where they sit compared to freeways and other landmarks. You can search for comps. In fact, from the time a property comes on the market, you can completely vet it, write an offer, and get it to the seller’s real estate agent in 90 minutes.”
“In the old days, that process would take a few weeks.”
Sharga believes the industry is migrating toward a hybrid model—a best-of-both-worlds approach that combines the power of the Internet with the local market expertise and people skills of a Realtor.
Real estate professionals will have a role no matter what happens. In fact, the biggest challenge faced by real estate professionals isn’t whether technology will make them obsolete, Sharga believes. It’s coming up with a new value proposition that reflects how they can help consumers in a tech-driven marketplace.
“If you don’t evolve to meet the needs of your customers,” he says, “you’ll make yourself obsolete—no matter what industry you’re in.”
This is the first of a three-part series exploring the evolution of, and adoption of, technology in the real estate industry.
Joel Cone is a southern California-based freelance business writer who specializes in the fields of real estate, economics and law. His articles have appeared both in print and online for many publications including California Real Estate, OC Metro, GlobeSt.com and The Los Angeles Daily Journal. He is also a contributor to Auction.com.