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Buyers Spur Change Toward New Real Estate Business Models

Written by on Tuesday, 20 October 1998 7:00 pm
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The traditional real estate business model has been built around serving the seller in a fiduciary capacity. Although the industry also historically provided some services to the buyer, the fact that the listing contract and property information comes through the seller has driven the industry to primarily market its services primarily to the seller's side of the transaction. But the Information Age has changed everything, including the importance of the buyer to the transaction....and the ways in which the industry provides service to the buyer.

Only three years ago, Abelson Trends Report in 1995 forecast that the most important demographic trend in real estate was consumer demand for better, more knowledgeable/professional agents. The second most important demographic trend the study found was public gain to MLS information. By the year 2000, the Trends Report forecasts that the consumer will have increasing access to home purchase information, a trend which significantly shifts more power to the buyer in the transaction.The combination of these three trends sets the stage for better buyer representation.

It is significant that 68% of homebuyers believe that the seller compensates the buyer's agent, according to the NAR's research, as this may be the factor that is impacting consumer confidence in the real estate professional and driving the buyer toward other means of finding a home.

In less than one year, the Internet has changed buyer home search patterns from 2% on-line searches to over 18% as of the end of 1997. This is closed transactions only, which indicates that the searches are certainly higher. With home sales over 4.3 million by the end of the third quarter, it is anyone's guess how much traffic is really pulled by Internet home search sites.

Realtor.com (1.3 million listings,) the nation's premier home search site with the most listings of any aggregator, is enjoying over four million visitors per month, earning it acclaim as a top 100 most frequently viewed Internet site. Homeseekers (660,000) HomeScout (700,000,) and CyberHomes ( 900,000) continue to add listing volume content. Newcomer Microsoft HomeAdvisor (500,000) is continuously working to pump its listing volumes upward.

Home search sites are responding to increasing traffic by joining forces with loan centers in an attempt to attract the home buyer and entice him/her to stay on one site for all their homebuying services needs. This is a trend that was begun in early 1998 when HomeScout merged with HomeShark. Since then, Realtor.com has partnered with QuickenMortgage and HomeAdvisor has joined forces with E-loan.

The trend of combining loans with home searches is one clear example of the rising number of services geared for the convenience of the buyer. More revenues are generated for the real estate industry and related industries by the buyer than the seller, resulting in strategic alliances between real estate companies, loan companies, title companies, moving services, remodeling services and many more industries affected by the real estate transaction.

Although it is impossible to estimate how many buyers use the Internet as the primary point of contact, it is clear from the traffic numbers and listings that buyers are taking the home search process into their own hands.

Clearly, Realtor.com and others are positioning themselves as the new business model for the real estate industry - that of transaction manager and service facilitator for the buyer. The transaction manager position is strongly recommended for all brokers and agents by consulting economist to the NAR, John Tuccillo, in his forthcoming book, The Eight New Rules of Real Estate , scheduled for release in early November by the Real Estate Education Company.

No longer is the Realtor necessarily going to be the first point of contact for the homebuying consumer, according to Tuccillo, and therefore no longer has to concentrate on holding the keys to the gateway of information. Instead, the Realtor can concentrate on managing the services needed by the buyer and the seller, with a stronger emphasis on knowledge and wisdom of the market.

Buyers are increasingly viewing homes as a serious moneymaking investment, realizing that equity at resale is directly linked to the terms and selling price of the original purchase price. They want representation and are favorably responding to new industry business models that cater exclusively to them.

Skepticism toward Realtor involvement is more pronounced in the home buyer than the seller. Unlike 80% of sellers in NAR's 1997 survey, only 60% of buyers for new homes and 58% of existing home buyers selected the first real estate agent they contacted to help them buy their home, and when asked if they would use the same agent again, only 70% of sellers responded in the affirmative.

Sensing that there must be a better way, new real estate companies are departing from the traditional agency mold. From one stop shops to buyer's only representation, new brokerage firms are looking for new ways to capture the lucrative relocation and cross-town moving dollar while concentrating on fewer services. Increasingly, attention is focused on the buyer, rather than the seller in the transaction. And significantly, this new breed is willing to bypass the lucrative seller side of the transaction.

Companies such as DFW Relocation in Dallas and Soma LivingSix month-old Soma Living serves technologically oriented buyers with computer kiosks and private web sites. The staff divides the labor of a traditional agent into four personnel whose separate specialties are resource coordinating, buyer agency, transaction management and broker services. The buyer's agent is paid on a salary basis with bonuses at closing. Not only is the focus of the company non-traditional but so is the compensation schedule.

Innovative buyer's services is a trend that will continue to grow, believes Kathleen Chiras, spokesperson with the National Association of Exclusive Buyer's Agents . She cites the example of a Houston affiliate whose exclusive buyer's agents have grown from a start up company to over 45 agents. The exclusive buyer's agent takes no listings and is paid from the home sale transaction.

"The concept of exclusive buyer's agency makes more sense to consumers than it does to industry professionals," says Chiras. "It is the real estate practitioner that is reluctant to let go of the belief that the seller pays the commissions. You could just as effectively argue that the commissions are paid by the buyer through the purchase price. It's a moot point. The transaction actually pays the commission to both the seller's agent and the buyer's agent."

These new business models represent a radical shift in Realtor ideology, who has historically considered the seller to be the industry's and the individual agent's first and foremost responsibility. Targeting services toward the buyer will continue to be a growing trend in the industry.

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  About the author, Blanche Evans

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.
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