Here it is 2015 and the real estate brokerage is still around, but it wasn't supposed to be this way. Twenty-five years ago futurists and innovators argued that with more real estate information online the need for real estate brokers would surely decline.
It hasn't worked out that way. In fact, one could argue that the web has done more to solidify the value of brokerage services than any ad campaign or PR effort. For instance, back in 1997 FSBOs represented 15 percent of the market, a share which fell to 9 percent in 2014 according to NAR.
Why has brokerage remained so firmly entrenched? Several counter-intuitive trends explain what has happened.
First, the information monopoly is over.
It used to be that brokers were the only ones in town with current market data. Today it takes only a few clicks to get sale information regarding just about any home you like, not merely current listing information but sale histories, interior photos, listing activity, tax information, maps, plats, and ownership data.
"This abundance of online information means brokers no longer need to physically show as many houses before finding an ideal match for a buyer," said Rick Sharga, executive vice president of Auction.com. "Instead, buyers narrow down the search by looking online and providing the broker with a few likely purchase candidates. This new process allows brokers to be more productive, to handle more sides in a year."
For instance, in 2014 there were 4.93 million existing home sales plus 437,000 new home transactions. Logically, if every transaction has a buyer and seller we have roughly 11 million people who likely check the Internet on a regular basis but the number of individuals who search for real estate information is vastly larger. Zillow, for instance, reports that in the month of December it had 86 million unique users -- and Zillow is just one of many real estate portals.
Second, the broker's job has evolved.
Brokers have become shepherds of the transaction process, sometimes with agency and sometimes without, moving buyers and sellers through thickets of documents, inspections and contracts toward the promised land of a quick-and-quiet closing. This approach has become more valuable as paperwork burdens have exploded -- by one estimate the typical loan application now exceeds 500 pages while contract documents seem longer than David Copperfield.
One by-product of the paper explosion is that it has become more difficult for owners to sell their own homes, part of the reason the use of brokers has increased.
Third, credit information is everywhere.
Credit reports and credit scores were once hard to get. Now three credit reports every 12 months are free for everyone and credit scores are widely available, some even come with monthly credit card statements. The result is that savvy buyers are able to catch outdated and factually-incorrect credit report data that otherwise would have lowered credit scores, raised borrowing costs and hurt their ability to borrow.
Fourth, mortgage shopping is now faster than the four-minute mile.
Not too long ago mortgage rates were updated daily by phone and fax. Today you can go online and get a very firm idea of loan rates within minutes. Despite many online information resources, many borrowers still do not shop for financing: A recent study by the Consumer Financial Protection Bureau found that 40 percent of mortgage borrowers check with one lender before getting a mortgage. In the Internet era not shopping for a loan is a likely path to higher rates and greater costs.
Fifth, real estate is always different.
Real estate is a nonhomogeneic commodity, a $19 word which means all homes are somehow different and unique, even the same models in the same condo project. Such differences explain why similar homes routinely sell for different prices and because buyers only want that one special house it's one reason why brokers remain central to the real estate transaction.
About the Author: Peter G. Miller is a nationally syndicated real estate columnist. His books, published originally by Harper & Row, sold more than 300,000 copies. He blogs at OurBroker.com and contributes to such leading sites as RealtyTrac.com, the Huffington Post and Auction.com. Miller has also spoken before such groups as the National Association of Realtors and the Association of Real Estate License Law Officials.