We’ve all heard the buzzwords. Consolidation. The Internet. One-stop shopping. The real estate industry, much like other industries, is going through a shake-out that will alter how we buy and sell homes in the future.
But talk is amorphous. What are some of the trends that seem to be driving real changes in the industry?
- Changing ownership. According to RealTrends, a magazine that looks at trends in the real estate industry, more than half of the owners of the top 350 firms nationwide are aged 55 and older. If they haven’t started already, these owners will soon be looking for ways to cash out of their businesses and set up their retirement.
There are plenty of buyers out there, including folks who want to build “fortress” positions with a 30 percent market share or more, notes Marcie Willis, director of market research for the National Association of Realtors, notes in the July issue of “Real Estate Outlook.” During 1995-1996, more than $15 billion worth of companies were acquired. The same dollar amount was spent in the first four months of 1997.
You’re also going to be seeing more franchisees out there. Willis writes that franchises now control nearly a 44 percent market share. Twelve years ago, they controlled half of that. The biggest player on the scene is HFS, Inc., which owns ERA, Coldwell Banker and Century 21, three of the top four franchise brands in residential real estate. HFS has plenty of cash, and has actively crossed the country buying up independent brokerage companies, like the 7-office Kahn Realty in Chicago.
Does this mean when you go into your local Century 21 office you’ll be dealing with a broker from HFS Inc.’s headquarters in Parsippany, NJ? No. Your agent is the same local agent you used to do business with. It’s just that he or she now pays a percentage of the sales commission you pay to the owner of the franchise.
The biggest change is the shrinking number of players in the business. The number of real estate agents, like the number of mortgage brokers, is shrinking as roles are defined and services become unbundled. Ultimately, we may see the day where real estate agents are hired to do a particular part of a transaction, for a lot less money.
- The Internet. Although much is made about the Internet, the potential for this tool far outstrips its current capabilities. And yet, companies are spending billions of dollars to stake out a claim in this giant electronic shopping mall.
RealSelect, Realtor.com, and other companies are competing for listings on the Internet. Once every listing is available everywhere, you’ll be seeing the same thing over and over again on everyone’s Internet site. And, let’s not forget that many larger newspapers are putting their weekend open house ads on the Internet as well.
Is that kind of repetition better for consumers? Sellers might like it. Savvy buyers might believe they’re seeing everything in the market — or they might get bored.
The good news about the Internet is that in many ways, it levels the playing field. Sellers who choose to sell without a broker have access to an increasing number of web sites that will take their FSBO (for sale by owner) listings and display them. Tens of thousands of real estate companies seek business by offering free information and discounted services on their site.
(In the interests of full disclosure, this column runs on several web sites, and Century 21 currently sponsors my weekly radio talk show.)
With free information, and equal access to discounts, the World Wide Web is proving to be color, age, sex, and disability-blind. In other words, you never know who is on the other end of the e-mail.
An active, efficient Internet marketplace also means that the most tech-savvy brokers are the ones who will ultimately grab a bigger share of the business. Being able to tap into the power and cash of a national franchise allows local shops to hotlink to the resources available on the national site, give and receive referrals, and take other pieces of the pie.
- One-Stop Shopping. The Internet seems like the ultimate place for one-stop shopping. On the Web, you can purchase “for sale by owner” signage, shop and apply for a loan. You can find the house you want to buy, and through the listing broker, negotiate and deal. You can close electronically, and then find contractors to help you renovate, and movers to move you in.
The reality of today’s Internet is that not every service is listed, and it’s difficult to be sure you’re getting the best deal available.
The concept of one-stop shopping, however, has become immensely popular, as real estate firms across the country recognize the financial rewards of keeping you, the customer, in one place.
Real estate brokerage firms have bought or started up mortgage companies. Many have bought or started title or escrow companies. Some have home inspectors and appraisers on staff who will gladly go out and do work for company clients.
One-stop shopping appeals to busy buyers and sellers, who don’t have the time or interest to shop around on their own. The problem is that you might not be getting the best price or service available.
Ultimately, the one-stop shopping concept will drive change in the residential real estate business, as innovative companies join forces to provide greater services and more value to the customer.
How can you win in all this? Although there will be some consolidation in the industry, the competition for your business will more fierce than ever. Shop around carefully, and don’t settle for less than what you want. Don’t allow yourself to be talked into accepting less.
More information than ever before is available through television, radio, the Internet, newspapers, magazines, books and free pamphlets. The best thing to do is to soak yourself with knowledge, and then go out and cut a great deal.
Aug. 11, 1997.