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Real Estate Business Models, Old And New
by Daryl Jesperson
iOwn.com, one of the first online lenders, folded its mortgage operation last summer. According to recent news reports, Mortgage.com and Homes.com are cutting back. CyberHomes is closing its doors, and HomeSeekers.com has a new alliance with eBay. The fallout of dot.coms in general and the struggles of many real estate-related Internet sites raise questions about business models and the new role of real estate professionals. The Traditional Model During the Depression, my grandfather saw a need for telephone communication between rural families along the new railroad spur in western North Dakota. With savings from a railroad career, he built a true mom-and-pop operation, with poles and wire as hard assets, himself as lineman, and my grandmother as operator. The business was so successful that American Telephone & Telegraph bought him out, making him financially secure for life. My grandfather's telephone company followed the old business model of providing customers with a product or service to generate sales and capital. The sales were a confirmation that the service satisfied a consumer need. A New Model The troubled online real estate-service companies are among those that survived the dot-com meltdown of last March, when stock values of Internet entities plummeted two trillion dollars. Such businesses – based on a new business model made possible by the Internet – have software on the Web but few or no hard assets. The idea has been to dream up a concept, obtain millions of dollars in venture capital, go public, and the stock price would multiply within a short period of time. With money going out the door faster than it was coming in, and little or no profit to show investors, many have simply run out of funds and struggled to acquire additional financing. The New REALTOR® Role Real estate people have been concerned that industry-related portals would marginalize them. Before the inception of the Internet, Realtors were the caretakers of proprietary MLS information. That control of property listings made them essential to home sellers and buyers. They regarded themselves as salespeople in the information business. But then the Internet came on the scene, its technology created entirely new possibilities for commerce. Dot-coms began flooding our industry. Many of them empowered consumers with listing information that used to be the domain of Realtors. Real estate people began to wonder what their business role would be in this threatening new environment. The Internet is here to stay. (I'm certain of this because I recently heard my first Internet-related country music song.) Real estate people wanting to remain in the business for the long term need to be technologically savvy to attract younger consumers who have grown up with the Internet. One of the few sites that's dedicated to keeping the Realtor at the center of the transaction is Homestore.com, which is partnered with the National Association of REALTORS. Real estate agents who will be successful in this new era will be closer to the older business model than the new one in that they actually have a service to offer in exchange for compensation. No longer controlling listing information, they will remain indispensable to consumers as interpreters of information. This role requires matching customers' increased access to information with expanded knowledge gathered through continuing education and courses leading to professional designations. Education, experience, market knowledge, consumer advocacy and specialized professional skills such as negotiation all bring added value to the transaction. Web sites just cannot do that, but Realtors can. Published: November 20, 2000 Use of this article without permission is a violation of federal copyright laws. Related Articles: |
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