The Real Estate Toll Gate Is Broken

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The first real estate information toll gate was created almost 100 years ago. By restricting access to the Multiple Listing System (MLS) information the real estate industry created a enormously profitable industry. The first MLS was said to be formed in San Diego CA nearly 100 years ago when two brokers agreed to show each other's listings and to split their commissions.

Internet changed all information based businesses

For almost 100 years this toll gate to real estate information worked without a hitch. But then the Internet changed how all information business operated. The Internet made vast quantities of information available free or at little cost.

Poor quality real estate information initially

The quality of Internet real estate information at first was very poor. So it was seen as no threat by most real estate professionals at the time. The Internet was hard to use, Internet access was slow and computers were expensive.

The Internet evolved faster than older established business

Real Estate was slow in adopting Internet technology. Most extroverted sales agents are not comfortable with Internet technology so they ignored or discounted the impending Internet threat. Even today the largest real estate franchise organizations seem to be caught by surprise as new web innovators enter the real estate market.

Commission Rates Slide

Only a few years ago the average real estate firm charged a commission of 6% to 7% of a home’s sales price. Today the average commission is only slightly above 5% and this rate in most markets continues to fall. But don’t feel too sorry for the real estate profession. The average commission per sale has probably increased due to the appreciation of real estate prices.

The real estate information “Filter”

The Real Estate Toll Gate also “filtered” the market data by allowing only “selected” information to be made available to buyers and sellers.

Filters were very successful until the Internet arrived

Today over 70% of home buyers use the Internet to search the real estate market before they even call a real estate firm, based on the Realtor’s own market study.

The unwritten rules of real estate:

Since most real estate agents work for sellers instead of buyers, due to listing agreements and MLS sub-brokerage agreements, the “filter” works as long as everyone follows the three unwritten rules of real estate:

1)    Always show buyers your own company’s listings first

2)    Always show buyers the properties that pay the highest percentage commission second

3)    Always act like properties “For Sale by Owner” doesn’t exist or at best have a problem

Internet users value their privacy and independence

Most buyers obviously want to search for real estate before they make a commitment. Buyers also resist having to turn over their contact information just to look at the filtered Internet MLS information. Buyers soon discover that by entering their “private” phone number and email address they will be contacted by an eager sales agent that “paid” for their contact information so they have a “right” to contact you.

Independent Contractors Dominate Real Estate

Broker’s don’t have enough control to dictate how their sales staff operates their personal businesses. Most real estate brokers pay their sales staff such a large percentage of the commission income the brokers are unable or unwilling to make the significant investment in technology necessary to catch up. When business slows brokers just sign on more sales people. receives a cold un-welcome into the industry

Recently a new Web 2.0 automated web concept offering free real estate market value estimates entered the fray. Determining the initial sales price has always been an Agents “ace in the hole”.

Agents were once necessary to set prices

Sellers in the past needed an agent to establish the sales price since current sales data was not easily available except to members of the MLS. Based on the volume of criticism leveled at Zilow and other Internet based real estate information firms the real estate industry is becoming more concerned as their monopoly continues to evaporate.

How will real estate adjust to the new market realities?

Look for significant brokerage consolidation as brokers attempt to maintain their current levels of income. Thousands of agents will begin to leave the business in search of a steady income. New Internet business models will continue to change the industry forever.

Flexible Business Models Will be Necessary to Survival

Agents will have to offer more services and more flexible commission structures to keep their existing customers and to attract the younger Internet generation as they become the next group of home buyers.

Ted Bailes


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Ted Bailes