Written by Nathan Thomas on September 28, 2004
Written by Nathan Thomas on September 28, 2004
Inman News kicked off its fall audio conference series last Thursday with a discussion on new real estate business models and their impact on traditional agents and brokerages. Five "alternative" firms spoke briefly about their business models and how they deviate from the model the majority of the industry uses and how such models will impact the real estate business in the future.
Bradley Inman, Publisher of Inman News, hosted the panel of industry experts that included Lyle Martin, Co-Founder, Assist-2-Sell; Mike Davin, EVP & Co-Founder, CataList Homes; Brian Yui, CEO, HouseRebate, Lawrence Bunnell, CEO/Principal Broker, InSight Realty; and Steve Malachowski, President, One Percent Realty, Inc.
Many traditional 6 percent commission agents have been wary of the new wave of discount and Internet-based brokerages because of potential threats to their business. But, alternative models are not for every home buyer, the panelists pointed out. There are still many home buyers that prefer a traditional agent to oversee the home selling or buying process for them.
"Ninety-eight percent of consumers still feel that way, and that's why the discount model in California has never really gotten above 1 percent market share," said Assits-2-Sell's Martin, who noted later that Assist-2-Sell's Los Angeles office currently has about 3.5 percent of the market share, but the newer Orange County office only has about 1 percent of the market share. "We get blamed for the failure of a lot of real estate agents who are out there. The truth is there's room for everybody. The good agents are not threatened by our model."
Malachowski of One Percent Realty agreed. His company charges an up-front fee to encourage only "serious buyers and sellers to do business with us" and a 1 percent commission for the transaction. "We're not trying to replace 100 percent of the people that transact real estate. I think in a down market, more people may start to forego the luxury [of having a traditional Realtor] if dollars are tight. There are a lot of ways around this and we're all looking for ways to attract the right amount of consumers over the next few years," he said.
While buyers may turn to alternative models for various reasons, the money savings are a big draw. Yui said that HouseRebate, a full-service discount firm that employs independent agents who work from home offices, tends to get much of their business from first time home buyers and cost conscious consumers. "A lot of our customers are new to the country and they're more apt to try to save money by using a discount service," he said.
"In lower-priced markets where people have 100 percent mortgages or home equity lines eating the value of their home, that 6 or 7 percent commission represents a tremendous portion of their equity. If they didn't have an alternative, they'd have to go for sale by owner," InSight Realty's Bunnell added.
Will these new guys be able to compete with the realty giants like Century 21 and Coldwell Banker? Malachowski said he doesn't feel threatened yet. "I kind of enjoy it when we lose business to a big, full-service real estate firm because their infrastructure does not allow them to compete at the margin that firms like ours can. They may get that business, but they'll be doing it at a loss," he said.
"We have a productivity problem in the business. The agents - not brokers - doing 15-50 deals a year won't have a problem competing with us. It's the agents only doing five or six deals a year that will feel the heat," CataList Homes' Davin added. CataList Homes, which specializes in the middle- and upper-end seller's market, employs full time agents who work for a salary and bonus system in lieu of a traditional contracted agent and commission split. The company also supplies all of the agents' marketing and selling materials.
In fact, Bunnell commented that some big realty firms have started offering MLS-only packages and other alternatives to compete with the growing popularity of discount brokerages like InSight Realty. The company's core offering is an online, flat fee Internet listing package but the company also offers bundled home buying service packages and a la carte services.
Although traditional real estate models dominate the market today, the panelists believe the market will evolve to accept more and more alternative business models in the future. In fact, several of the panelists indicated they're now building up their companies now so they're prepared when the market eventually flips.
One conference attendee commented to the panelists that the real test of these models' stability will come as the market slows. However, Martin disagreed. "The truth of the matter is that when the market gets tough, home sellers have to be more competitive in the pricing of their home and they are equally responsive to saving money. MLS services will become a vital marketing tool that given the choice, many sellers would take advantage of in a slower market," he said.
As Davin puts it: "A bad housing market hurts everybody."