future of the residential real estate brokerage industry, The

Real Estate Issues, Summer 2001 by Jud, G Donald, Roulac, Stephen

In the FSBO model, competition among Internet service providers for online traffic ensures that new information and services will continually be provided on the Web. Buyers and sellers are able to select the services they want to best assist their particular transactions. Service providers advertise on the Internet to buyers and sellers who may need or want their services. All services are unbundled, so that a home seller who may need help, for example, on negotiating an offer, arranging a closing, or troubleshooting between acceptance and closing, can contact potential vendors and purchase these services over the Internet. Likewise, home buyers who may want help, for example, with viewing a property, inspections, financing, or closing will be able to purchase these services on the Internet. Real estate brokers may choose to offer these services, but they will be in competition with attorneys, paralegals, and other service vendors who may enter this market.

Unbundled Services Model

In the unbundled services model, in contrast to the FSBO model, real estate agents survive as a profession, but service offerings are unbundled. Agents offer consumers a menu of services from which the consumers are able to choose. Such services may include pricing the property for sale, negotiating the contract, managing the contract through closing, etc. An example of unbundled services in the area of appraisal is available on the Wall Street Journal Web site (www.homes.wsj.com), which allows potential home buyers and sellers to easily look up the recent selling prices of particular homes in specific neighborhoods all across the country. The site also provides neighborhood information on such factors as school quality, climate, income levels, etc.

The Internet revolution puts more control in the hands of buyers and sellers because they can obtain information more easily. Consumers can pick and choose the brokerage services they desire. In the past, consumers have had to consult brokers to obtain information. Now, information is provided free on the Internet. The rational for the local MLS no longer exists. MLS services are provided directly to consumers by Internet service providers, who are engaged in a fierce competitive struggle to maximize service offerings to attract traffic. Brokers are forced to offer services on a fee for service basis and competitive forces put downward pressure on fees.

Arguably, information advances, rather than eliminating the role of intermediaries can create multiple new niche markets for specialized, intermediary functions (PikeNet 2000). Those who provide the information, whose widespread availability challenges the traditional brokerage model, will necessarily be compensated for providing that information. If the information intermediary does not receive a commission for the transaction, then that intermediary will receive revenue through advertising, sale of allied information products, or some other economic benefit for business opportunities derivative of the function of providing that information. Interestingly, some individuals now working for salary and other forms of compensation for the Internet enterprises that provide information and services that threaten the traditional brokerage model, previously worked as sales agents in traditional brokerages.