The handwriting has been on the wall for a number of years: The way residential real estate has been bought and sold over the past 100 years is going through a fundamental change.

Home buyers and sellers are beginning to ask real estate agents to shift from a one-size-fits-all model, also known as the full-service commission, to something with more options – a sort of pay-as-you-go plan or services that can be provided on an as-needed basis.

The fact that we’re asking different questions about the way we buy and sell real estate, and demanding different answers, is a sign of how much more aware we, as consumers, are about the process.

For nearly 100 years, buyers and sellers were content to have professionals lead them by the hand. And, sellers were willing to pay a commission-based fee for that privilege.

But the Internet has, to a large degree, changed the way real estate works. In one short decade, real estate has unpeeled itself like a banana losing its skin. Information that was once available exclusively through your local broker, is now readily available at the touch of your fingertips, 24 hours a day, 7 days a week, holidays included.

It’s easy to shop for a home, mortgage, home equity loan, title or escrow services, and even general information about the process. (In fact, it’s a lot harder not to be overwhelmed by all the free advice and information that’s available.)

Like fish eying worms on a hook, home buyers, sellers and owners have sat up and taken notice of all the free information being offered to them on the Internet. In 1997, a study reported just 13 percent of home buyers started their search for a home on the Internet. This year, 86 percent of buyers go the web before doing anything else.

“Five years ago, I went to consumers and asked them what they understood about the real estate process. What do you like or dislike about it?” recalled Julie Garton-Good, a syndicated real estate columnist and author of the book Real Estate A La Carte (Dearborn Trade, 2001).

Buyers and sellers told Garton-Good they wanted a different way of paying for the services provided by real estate agents. In the past ten years, many real estate services have become available on an as-needed basis, such as showing a home, providing information, making calls, and handling negotiations. Nearly 200 other services have been broken down by discount real estate firms, which charge either a flat fee or by the service provided.

Many buyers and sellers are starting to feel more comfortable using different sorts of real estate companies, which may be one reason the percentage of sellers who sold “by owner” has been increasing.

“The baby boomer generation is much better informed than earlier generations,” noted Rick O’Neil, a 30-year real estate veteran, who spent two decades in the corporate office of Century 21.

For many of those years, O’Neil did business the old-fashioned way — as a full service broker charging a full-service commission. In 1999, he joined Help-U-Sell, a brokerage company that unbundles real estate services and charges for them individually.

Help-U-Sell charged a flat fee for the same services a full-service broker provides, according to O’Neil. He gives this example: If you sold a house for $400,000, and you agreed to pay your agent a 6 percent commission, you’d pay $24,000 in brokerage commission. Help-U-Sell might charge just $3,950 for the same services.

“Fee-for-service consumers are value-oriented people. They are going to pay for a service they think is worth it. For example, a consumer might pay several thousand dollars to go skiing on the weekend, but when they return home, they’ll shop at Costco,” O’Neil explained.

O’Neil said the fact that consumers recognize they have now have options such as fee-for-service and discount brokerage is both revolutionary and evolutionary.

“With the Internet, there are more fee-for-service companies and more choices available for the consumers. The fee a consumer pays has to be commensurate with the service provided in the eyes of the consumer,” O’Neil said, adding that real estate agents and brokers have more trouble understanding this than consumers.

O’Neil and Garton-Good have both said that they cannot see how conventional, one-size-fits-all brokerage can be sustained. Already, some full-service brokerage firms have cut commissions, starting charging separately for the preparation of various documents needed for the closing, and stopped offering some services.

“People will pay for the things they need, like signage, talking house boxes, and tips on negotiating,” Garton-Good stated. On the other hand, they’re asking “why pay a full-service commission if I have done half the work?”

If nothing else, the wide variety of options and information now available to consumers means full-service agents will have to rethink the way they do business. While some agents will continue to help consumers buy and sell homes the way they have for the last 100 years, more agents will likely evolve to meet the needs of a new, savvier generation.

June 23, 2003.