Monday, June 09, 2014
The End of the World as We Know It
Just a few years ago, Realtor.com was the number one website that consumers used to search for real estate. Most MLS systems including ours share their listings with Realtor.com. Not long ago the Brevard MLS began sharing listings with several other websites with the thinking that more exposure was better. These outside sites, Trulia, Zillow, Homes.com among others, took our listings (freely given by us, BTW) and presented them on their websites that were usually more user-friendly than the clunky consumer side of our MLS. They built traffic and popularity quickly. Zillow cleverly created an automatic estimate of value of all properties, the Zestimate. It has been notorious for inaccuracy and Zillow has admitted as much. However, the inaccuracy, whether intentional or accidental, has been a brilliant viral tool as it is one of the most discussed topics on practically every online real estate forum. Zillow is now firmly in the number one spot as the highest trafficked real estate website and is getting twice the monthly visitors of Realtor.com.
Once they gained traction and traffic these websites began selling advertising back to the very agents whose listings made up the content of the site. For a fee, any agent, listing or otherwise, can have their smiling Glamour Shot placed in the margin next to listings that consumers view. Consumers can also search for agents and read reviews supposedly from past clients. Agents have to sign up (for free) to show up in the list of agents. Once signed up for free the sales reps begin repeatedly calling to sell upgraded placement. One agent told me that a sales rep at one of the sites told him that they would remove any bad reviews if he signed up.
Let's test the agent search on one of the sites I mentioned. Searching for an agent in Cocoa Beach I get 492 results. Holy cow! That's like 4% of the population of Cocoa Beach. Nine of the thirteen agents listed on page one of the results work out of offices in cities other than Cocoa Beach or Cape Canaveral. I have never been involved in a transaction with nor even heard of any of those nine agents. [Note: When choosing an agent online, it makes sense to make sure they actually work in the market they are claiming to service. Big red flag is an office in another city.] Guess who isn't among the 492 Cocoa Beach agents? Yep. Yours truly. Representing hundreds of buyers in Cocoa Beach over many years is not enough to show up in a list of Cocoa Beach agents because Homey won't play their game and do the "free" sign-up. It doesn't really matter because very soon the agent advertising revenue will become inconsequential to these sites.
Now that they have the traffic, there appears to be a much more lucrative business model looming. It will be a simple shift to offer listings directly to home sellers who aren't listed with a local real estate broker. I can see the local MLS quickly becoming irrelevant if all listings (including non-MLS-listed properties) can be found on another easier to use website. Why would a home seller pay a real estate broker thousands to market and sell their home if they can get adequate exposure and an acceptable selling price elsewhere for a few hundred bucks or even "free"? We are currently in the transition. At the moment, as a seller, I couldn't be sure I'd be getting exposure to all buyers by only being offered on a non-MLS website. I might leave money on the table without exposure to all potential buyers. Certainly most buyers are looking for property online, but no one can be sure which website they are searching ... yet. That is changing and the eventual 800 pound gorilla may just be an under-the-radar chimp charging in from left field.
A couple of years ago Nationstar Mortgage began running some of it's short sales through auction.com prior to negotiating the short sale. After receiving a short sale package from a seller's agent, they would require the owner of the property to turn over the listing to auction.com or their short sale would be refused. If a bid above the short sale contract price was received at auction Nationstar would accept that one instead of the original contract. The buyer would pay a 5% premium on top of the winning bid and would be allowed no financing nor inspection contingencies. This turned out to be a lucrative venture for Nationstar and they recently acquired Homesearch.com for $18 million and began running their short sales through auction there. Their sights are on much loftier goals than short sale auctions and they may eclipse the Zillows and Trulias of the world and transform real estate in the process.
About the acquisition, Nationstar CEO Jay Bray said,
“Today, real estate search engines allow you to search for homes, find the estimated property value of your home, and somewhat realistically, those of your neighbors. However, these search engines are not currently designed to allow consumers to transact, and lack a comprehensive fee-based business model. In short, their value is generally limited to real estate catalogs supported by advertising.”
By contrast, Nationstar envisions that consumers and real estate agents who come to its site will be able to list their properties, manage them, sell them, buy them, and look for “downstream” mortgage, title, appraisal and closing services. Annually, there are 8 million real estate transactions in the United States, 5 million home transactions and 3 million refinancings. Our macro goal is to capture a fee component of as many U.S. real estate transactions as possible while increasing profitability,” Bray said.
Once they iron out the wrinkles using their own substantial inventory of short sales, I can see them offering the auction process to the public for a small fee. Probable scenario is: The property sellers specify a reserve price so they don't sell for less than the price they want but specify a starting bid substantially below the reserve. The buyer pays the website a 5% premium and hires a local agent to view properties, handle inspections, review paperwork, etc. He could choose that agent from a list of agents on the site. Since those 492 Cocoa Beach agents no longer have listings Homesearch would let them advertise bids for various services and busy work while scraping a small fee off the top. A couple hundred bucks to unlock a property and review a contract is better than nothing. In addition, the website would sell advertising or paid referrals to title companies, lenders and inspectors. One stop shopping and the blazer-clad Glamour Shots are free to join their travel agent brethren over a frosty brew at the Beach Shack discussing how video killed the radio star.
This is not crazy speculation. It's happening right now and the MLS systems are scrambling trying to put the horse (the listings) back in the barn. Our own association is among those embroiled in a fierce debate over the subject. I fear it may be too late. One bright spot is that when the traditional real estate model succumbs I will find myself in the best little beach town in Florida concerned more with wind and tide than inept listing agents and first right of refusal. There are worse things.
I hope everyone got a piece of the small longboard perfection yesterday morning. It was a classic summer Cocoa Beach day.
"If you do not change direction, you may end up where you're heading." ___Lao Tzu