Real Estate Brokers Changed By Online Competition

Peter G. Miller
OurBroker®

For awhile it seemed as though no traditional business was safe. Stockbrokers, booksellers, and travel agents all battled with the Internet -- and all lost marketshare and profit margins to Web upstarts. But that hasn't happened with real estate, and the reasons why are more than interesting.

All businesses have a certain economic basis, at least until someone finds a quicker, better, or cheaper way to satisfy consumer wants. And the most vulnerable businesses, the ones which ultimately have the greatest risk, are those which offer similar or identical products and services.

Think about it this way: When you go to buy a van you really don't care if you buy from dealer Jones or dealer Smith. The van comes from the same factory. The only issue is which dealer will give the best price and terms.

Then consider this: The catalog business has shown that you do not need a physical store setting to sell an array of retail goods, a useful example for the Internet.

Combine fungible (like) products and services with an absence of traditional costs such as stores and local employees, and substantial economies are instantly available. Thus we see shifting markets for books, CDs, and stock purchases to online venues.

But being online does not guarantee profits.

While online sites may not pay rent for mall locations, they have high marketing costs because people need to find Web venues.

And a related problem works like this: A business which starts out in the "virtual" mode may soon grow into something which looks suspiciously traditional.

Barron's magazine, as an example, points out that Amazon.com now has 2.7 million square feet of warehouse space -- hardly a Web-only operation (See: "Amazon.Bomb," May 31, 1999).

Surely the Web has brought changes to real estate. Thousands of brokers have their own Web sites. Listings have migrated from closely-held MLS systems to online sites operated by state and local broker organizations, franchises, and online firms. Indeed, Realtor.com, a site with 1.25 million listings, is vastly larger than any local MLS.

But strip away the electronic gloss, remove the high-tech gadgetry, and the finished picture looks like this:

• All homes are unique.
• All sellers are unique.
• All buyers are unique.
• All transactions are unique.
• The brokerage effort for each transaction is unique.

Credit cards tend to have unique and interesting terms which typically add up to higher costs than most consumers expect. The Federal Reserve provides a useful guide to credit cards, including a national rates survey.

Published: June 15, 1999

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Editor's Note: This article reflects the opinions of Peter G. Miller only and not necessarily the views of this or any other publication, organization or Website owner.