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Saturday, April 08, 2006

Law - The Changing Face of Real Estate Sales

The Wall Street Journal had two stories this week, on Wednesday and Thursday, on the changing face of real estate sales nation-wide. The two stories have been republished in the Pittsburgh Post-Gazette.

"Google, Craigslist expand into real estate" is the headline to the first, lengthy story. It begins (emphasis added):

Craigslist.com and Google.com, two Web sites that have fundamentally altered the way consumers buy a broad range of products, are emerging as places to shop for residential real estate, a development that in the long term could weaken Realtors' hold on home selling.

Listings of real estate for sale on Craigslist, a popular Web site featuring free classified ads, rose to 335,126 in March, more than triple the level of a year earlier. Google Inc., meanwhile, is testing a tool to help users sort through listings of homes for sale. Several more specialized sites launched in the past year -- including Trulia.com, Oodle.com and Propsmart.com -- offer free access to substantial numbers of listings.

While their real-estate ventures are still relatively small, sites like Google and Craigslist have begun reshaping the advertising world as they offer a potent alternative to ad spending on traditional media such as newspapers and TV. Craigslist in particular has become a popular place to post classified listings for rental apartments, child care, jobs, furniture and personals. With household brand names and huge numbers of users -- Google had 89 million visitors in February, according to research firm NetRatings Inc. -- Google and Craigslist have the potential to draw large numbers of home-sale listings.

The proliferation of real-estate sites comes as brokers are under pressure from several directions. As home sales slow, an increasing number of discount brokers are vying for customers. In addition, the U.S. Justice Department and the Federal Trade Commission are investigating industry practices that they say deter competition. * * *

The Web-site companies say they don't aim to revolutionize real-estate brokerage and indeed are working to cooperate with brokers in many cases. But the growth of the sites may embolden more consumers to try selling their homes themselves and, when they do use agents, to reduce their reliance on them. Abdullah Yavas, a real-estate professor at Pennsylvania State University, says these sites may encourage an "unbundling" of agents' services, with consumers paying for only the services they want, rather than a whole package. For instance, a consumer might list a home on Craigslist and arrange showings, but still hire an agent -- for a lower commission -- to help with negotiations or guide the paper work.

The second story is headlined "Real-estate brokers step up rebates as market cools." Some quotes:
As the real-estate market continues to cool, a growing number of brokers are doing what was until recently unthinkable. They are giving most of their commissions to buyers.

This novel pitch is catching on in some of the priciest real-estate markets in the country. In February, Seattle-based Redfin launched a service that offers to rebate two-thirds of the commission it receives for representing a home buyer. Redfin currently operates only in the Seattle area but plans to expand to San Francisco in May and to Los Angeles, San Diego, Boston and Washington later this year.

Meanwhile, BuySide Realty Inc., a new company based in Chicago, is expected to announce Wednesday the launch of a service offering home buyers rebates of 75 percent of the commissions it earns as a limited-service broker. The closely held company will initially operate throughout Illinois, Florida and California and aims to cover 39 states by the end of 2008.

People selling homes typically pay commissions of 5 percent to 6 percent of the price, which is split between brokers representing the buyer and seller. On a $300,000 home with a 3 percent cut for the broker representing the buyer, BuySide would earn $9,000 and pay 75 percent of that, or $6,750, as a rebate to the buyer.

These new rebaters join a long list of entrepreneurs who over the years have tried to reinvent the residential real-estate business, which generates more than $60 billion a year in commissions. * * *

One of the biggest problems for rebaters is persuading consumers that the offers are legitimate. "People often think it's too good to be true," says Daniel Ruben Odio-Paez, a real-estate agent who works in the Washington, D.C., area and operates a Web site, RebateReps.com, that connects buyers with agents willing to provide rebates. BuySide and Redfin hope to build up nationally known brands that would give rebates more credibility. * * *

The premise of BuySide and other rebaters is that many consumers nowadays find the homes they want to buy online and should be able to share in the commission paid to the agent that helps them complete the transaction. BuySide customers will view homes on their own rather than being driven around by agents. The BuySide agents, to be paid salaries rather than commissions, will be available to answer questions and help guide the paperwork by telephone and email.

For background on a new Indiana law that may restrict Hoosiers from availing themselves of many of these new options, see this ILB entry (and its links) from March 30th headed "Ind. Law - Yet again on: Home sellers lose with this new law."

Posted by Marcia Oddi on April 8, 2006 02:43 PM
Posted to General Law Related