Online house shopping
It's taken a long time, but real estate agents are finally feeling the pressure of disintermediation, which the Internet was supposed to bring to every kind of business by allowing producers and consumers, buyers and sellers to search for and communicate with each other without middlemen -- or rather with low-cost websites rather than agents as middlemen. Real estate agents "earn" their money -- a commission that never varies with economic conditions -- mainly by keeping a tight lid on the list of available houses in a region. The commission then is a kind of extortion, and real-estate agentry a kind of institutionalized corruption, with several palms that need greasing simply because they've positioned themselves as gatekeepers. (Also, as Levitt and Dubner explained in Freakonomics, agents don't really have your best interests in mind -- they have a greater incentive to complete a sale quickly than to get you the best price for the home you want to buy or sell.) Recently the Justice Department has chipped away at this unfair business practice, and online real estate services have begun to let buyers find available properties for themselves and gauge a fair price for them by seeing maps with values of nearby and comparable houses. This is the same process that happened with airline tickets; travel agents became superfluous, so they disappeared as we all learned to fend for ourselves with out computer searches in the arcane world of airfare pricing.
But real esate agents don't plan to go down without a fight. A New York Times article this past Sunday about discount brokers reports, "In many cities, real estate agents have tried to restrict access to M.L.S. information or to limit its use on the database. Some have asked state legislatures to pass laws forcing brokers to offer certain levels of service, a move that Mr. Kelman [who runs an online discount broker, Redfin] sees as intended to squeeze out discount brokers. “It’s a thousand tiny shackles on innovation,” he said." The article also notes how some agents are so threatened by buyers who eschew traditional agents, they have apparently refused to show houses to them. "Matt Bell, general manager of sales at RealNetworks in Seattle, said that 'when the listing agent wouldn’t show me the house, that’s when I knew Redfin was on to something.' He added: 'If agents don’t like it, then it must be better for consumers.' " Real estate agents have responded by basically saying that Redfin's clients are crybabies. " 'Someone may be trying to manufacture controversy, even going so far as to bait other real estate practitioners, invite war stories on their blog and whine to Congress and to newspaper reporters that they’re being treated unfairly,' said Marlow Harris, a Seattle agent with Coldwell Banker Bain Associates." Somehow I don't think this approach will win agents much sympathy. But it is in step with the intimidation tactics that have sustained them this far -- their business model is premised on keeping customers ignorant and frightened about procedures that aren't all that mysterious once you remove the sophistry and stonewalling the agents introduce. (And it is not as if agents are helping clients avoid mistakes -- they certainly weren't discouraging marginal borrowers from going in over their heads with option ARM mortgages they didn't understand to buy houses they shouldn't even have been considering.)
But even if they succeed in preventing people from seeing properties first-hand, customers may be able to turn to the Internet for virtual tours, complete with comments from other would-be buyers who looked it over. This Wall Street Journal story details how user reviews à la Amazon are starting to crop up alongside real estate listings online. Real estate agents, predictably, are upset, because this constitutes yet another threat to their monopoly on market information. They argue that such information is polluted with lies and motivated by "spite." But it seems more likely the commenters are motivated by their feeling of betrayal in having been misled by an agent, or having to hear an afternoon's worth of doubletalk. Sure, a buyer could use a host of sock-puppets to mount a whisper campaign against a certain property in efforts to drive the price down or to discourage other buyers from investigating further. But it is just as likely these sites will be innundated with agents posing as customers spouting empty real-estate gibberish, balancing it out. In fact it's merely a matter of time before the flood of agent doublespeak hits these sites -- just as record companies used to flood Kazaa with dummy files to thwart filesharers.
But no matter what agents try, their days seem numbered. A more efficient, if less personal, real estate market will emerge, if only because consumers have been sold on the idea that doing house research themselves is more convenient (much like bagging one's own groceries is alleged to be) and it's experienced as a kind of freedom rather than an imposed burden. As this trend gains momentum, expect to see it reported as the democratization of the real-estate business.