Technology Advancements Doe Not Lower the Cost of Selling Houses
One of the arguments used by the Wall Street Journal and others is that technology should bring down commissions, and therefore, lower the cost of homes. They then compare the stock exchange and travel agency sales. They may as well have included the online ordering of a hamburger from Burger King. There is no comparison between those apps and the Multiple Listing Service (MLS).
In the case of stocks, if I want to buy some shares of a stock, I set up an account with a brokerage. I then find the stock I wish to purchase, I offer a price I am willing to pay and wait for the order to be filled. Sometimes it happens instantaneously and sometimes it takes a few hours. An airplane ticket is an airplane ticket. Technology created a method of completing a purchase of tickets online. Simply pick the ticket you want with the airline you want to fly on, put in your credit card and hit “Purchase.” Same with the hamburger.
Comparison to travel agencies is also flawed. Many people who are planning leisure trips or cruises rely on travel agencies to give them guidance. A knowledgeable travel agent will save their client time and money, not to mention frustration of taking a trip that is not what they really wanted. Those agents get paid a commission by, you guessed it, the seller of the trip.
How has technology made the purchase of real estate any easier? The fact is: it hasn’t!
A Short History of the MLS
Perhaps a little history of how the MLS worked prior to 1990. When someone hired someone to sell their home, the marketing process was greatly word of mouth, networking and advertising. The real “Good Ol’ Boy” system. Sellers had to be satisfied with what offer was brought to them.
MLS was designed to help the sellers to have access to more buyers, not just the ones that the listing agent would represent. Yes, this probably resulted in the seller obtaining a higher price, but isn’t that what they want?
The first MLS was a bunch of books published every week or two that had all of the houses in cities listed, usually with one picture and a brief description. Often, because of publishing time, homes would already have been sold and new ones would on the market that were not in the book. Then, technology arrived.
The MLS advanced to a computer, a modem and a dial-in access to new listings on the MLS. They would print a list of these every morning for the real estate agents in that office to see if any new listings matched what their buyers were looking for. A little better, but not much.
Over the years, technology advanced to the point where there could be multiple photographs, copies of disclosures, links to the tax records and more showing on the MLS, which at that time was available only to real estate agents. They could program their own MLS account to email copies of listings that matched the requirements of their clients directly to those clients.
How Technology Affected the MLS and Real Estate Sales
Then in 2000, a little start up internet company called zipRealty.com came up with an idea of establishing a website where people could search the MLS themselves. They hired Real Estate Brokers, starting in Northern California, and would “scrape” the data from the MLS and republish it on its website. In return, the buyers would receive a 1% rebate at close of escrow if they made the purchase through zipRealty. Agents were on salary, bonus and benefits, such as Medical and 401k programs. That led to every agent having the ability to offer a search of the MLS on their personal website, while still showing the name and contact information for the listing agent.
To get back to the idea that technology should be bringing down commissions is not realistic. A person who wants to purchase a new home does not go to one of these websites, search for a house, hit the “Add To Cart” button, plunk down their credit card and automatically now own a home. There is a reason escrows take 30-60 days is because that is where the real work comes in. During that time frame, the agent is:
• Coordinating with lenders to arrange financing.
• Coordinating with appraisers to have access to the property.
• Coordinating with pest inspectors, property inspectors, roof inspector, pool inspectors to provide them with access to the property.
• Meeting with the client to review the reports generated from inspections and appraisals.
• Negotiating with the other agent and their clients in cases where repairs might be needed or the appraisal of the property comes back below the offer amount.
• Working with the Title and Escrow companies (sometimes with lawyers, in states where lawyers handle closing).
After doing all of these things, the sale could collapse and the agent earns nothing.
Prior to all of that, the buyer, no matter how many photographs or videos there are of the property, they are going to want to go there, look at the neighborhood, get inside the house, ask questions about schools and shopping, and many other issues.
These are all things that cannot be done with technology, and they never will take the place of real estate agent. Basically, the only thing that technology changed was that it replaced the information on Homes and Land Magazines that were given away at the supermarket with a multitude of websites that provide the same, albeit a greater amount, of information.
By the way, the zipRealty model did not work.
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