The internet has destroyed many business models. Just look at Circuit City, Borders, and travel agents. But one area where we haven’t seen much impact is with real estate agents. Sure, you’ll look online for hours on end for different houses and whatnot, but when it comes time to start looking at them in the real world, or make a purchase, we all go with a real estate agent. Why has this business model not been destroyed yet?
BusinessWeek looks into this with the story of three major players in online real estate. Two you probably know: Zillow and Trulia. The other, Redfin, predates them both. Redfin has tried to turn the real estate game on its head but so far hasn’t gotten significant traction. Whereas Trulia and Zillow have instead partnered with the existing real estate industry and seen far greater success.
The article does a pretty good job explaining the economics of the industry as it stands now, and it kind of feels like a racket.Not only have brokers resisted the attack by the Internet’s real estate sites but their fees remain stable. Real Trends, a research firm, reports the average commission paid to the buying and selling brokers was 5.4 percent of the price of a home in 2011, up from 5 percent in 2008. (The seller’s agent collects the commission from the seller and then splits it evenly with the buyer’s agent.) That’s considerably higher than the median rate in markets abroad, where there may only be one agent involved in the transaction, such as the U.K. (a 1 percent to 2 percent fee), Germany (3 percent to 6 percent), Israel (4 percent), and the Netherlands (1.5 percent to 2 percent), according to a 2007 report by the Organisation for Economic Co-operation and Development. “Ten years ago almost no one started their home search online. And yet none of that value has come back to the consumer,” says Glenn Kelman, Redfin’s chief executive officer.
Make sure you read the rest here: Why Redfin, Zillow, and Trulia Haven’t Killed Off Real Estate Brokers (BusinessWeek)