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Monday, March 6, 2006 - Page updated at 12:25 PM

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Agents feel squeezed by new sites

Special to The Seattle Times

Last month two Seattle startups launched real-estate services that have raised brows in the world of traditional real-estate agents.

Mention Zillow or Redfin, and your friendly neighborhood real-estate agent may launch into a passionate lecture about the merits and superiority of the full-service agency.

Zillow.com lets consumers get an instant quote on most any home's market value without the help of a real-estate agent or appraiser.

Redfin.com lets buyers use Redfin Direct, its Web-based discount service, to write a purchase offer online and work with an agent to negotiate with the seller.

Full-service transaction


Buyer meets with a full-service agent and discusses his or her budget, favored neighborhoods, and requirements versus preferences for a new home

Agent finds appropriate homes for buyers and buyers tour homes with the agent, logging lots of hours with the agent

Agent and buyer discuss offers and agent leads buyer through the offer process and related paperwork, often negotiating heavily with sellers or to help the buyer beat out other buyers' offers

Agent does "comparative market analysis" (CMA) of homes to make sure the buyer's home of choice is priced fairly and to give the buyer added perspective

Once the offer is accepted, agent keeps the transaction on track, making sure contingencies like the inspection are done on time and talking to the buyer's mortgage lender, for instance

Agent will likely have a rolodex of names of other parties important to the transaction, such as escrow, title, appraiser, insurance and inspection companies or storage/moving companies

Agent collects roughly 3 percent transaction fee after sale closes

"Full service" is a catch-all term for the prevailing business model in real-estate brokerages. Full-service agents help clients shop, write offers, negotiate with sellers, among other services. They typically are paid a 3 percent commission to represent buyers or sellers.

Real-estate agents already concerned about discount brokers taking too big a bite out of the real-estate market are worried that Web companies like Redfin and Zillow will, for some buyers and sellers, eliminate the need for a full-service agent.

Indeed, in several states, full-service agent organizations are pushing laws requiring full-service agents or none at all.

But the U.S. Department of Justice and Federal Trade Commission are defending discount and limited-service brokers, said Maureen Ohlhausen, director of the office of policy planning at the Federal Trade Commission.

"Consumers should be able to pursue the level of service that suits their needs," Ohlhausen said. "Giving them these choices doesn't seem to cause them harm."

Startups criticized

Some full-service agents criticize Zillow's house values as inaccurate and say Redfin Direct is an unsound alternative for consumers because average homebuyers don't know much about real estate.

Agents say consumers, lured by saving money on commissions, will make mistakes or lose money over the long term when they make offers through a service such as Redfin Direct.

"We see ourselves as specialists," says J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. "We do not provide a 'limited-service' approach."

Partial-service transaction (working online or with a discount broker)


Buyer uses real-estate- agency Web sites or the MLS to research homes for sale

Buyer does extra homework about homes of interest by looking at the home's value or history with the help of virtual tools from Domania, Zillow or other sources

Buyer checks out open houses on his or her own or calls listing agents directly long before contacting a full-service agent to help him or her write offers

Buyer may find a realtor online (through a virtual real estate agency like Zip Realty, for instance)

Buyer may use a discount broker, who refunds a portion of the typical 3 percent buyer's agent fee to the buyer in exchange for using his or her services

Buyer, especially if he or she is an investor, may handle the transaction without an agent — buying a home that is for sale by owner, called a FSBO; making a 1031 exchange with other investors; or buying a foreclosure that is not represented by a listing agent

Anecdotally, Scott says, homeowners have more of an idea about what their home is worth than Zillow does. He thinks Zillow's data should be regarded as general information, not definitive values.

Redfin Direct challenges both how a consumer uses a real-estate agent and how that agent is paid. It refers buyers to agents only when they are ready to make an offer. The agents help with the offer, negotiation and closing for a 1 percent commission.

Redfin Chief Executive Glenn Kelman acknowledges that Redfin Direct is not for everyone. But, he stresses, there are many buyers who want representation only when they're ready to write an offer.

Zillow communications director Amy Bohutinsky agrees. Before Zillow, she said, a consumer couldn't get a home value without calling a real-estate agent — even if the consumer wasn't ready to list the home.

But, Bohutinsky says, Zillow doesn't expect its home-value data to rival the figure a real-estate agent develops in a comparative market analysis.

"We're offering the consumer more choices about when to engage with a Realtor and how to engage with a Realtor," Bohutinsky said.

This thinking, though, challenges real-estate agents who are used to overseeing the entire real-estate transaction. Some observers say that when real-estate agents lament Zillow and Redfin, they're really carping about the erosion of their control over real-estate consumers.

"Natural evolution," long-overdue change

Some members of the real-estate community say it's time to accept the new players.

"Consumers want access [to information] versus an agent who's controlling all the information," said Rich Roberts, vice president of Marketing at ZipRealty, an agency that relies heavily on the Internet to interact with customers and whose agents refund 20 percent of transaction commissions to customers.

Real estate, Roberts says, is an industry long ripe for serious changes.

"It's a natural evolution that's been postponed in real estate," he said.

Of course, agents — full service or not — know that their clients can do lots of homework on the Internet, and most use technology to help clients store, save, review and ponder potential properties online.

Indeed, the Internet's role began to widen more than a decade ago, largely because real-estate agents recognized the need to work with consumers' increasing use of technology. First the industry displayed neighborhood listings online, then added addresses, maps, aerial maps and more.

Steve Cook, vice president of public affairs at the National Association of Realtors in Washington, D.C., said his organization held focus groups three years ago to gauge what buyers wanted from agents. While many said they wanted the soup-to-nuts services of a full-service agent, some didn't.

"There's a certain cohort of consumers who do want to have a larger role in their [real-estate] transaction," Cook said. "There truly was a change in the way consumers want to be involved."

Online sites aimed at different consumers

Kelman says his company's Redfin Direct service isn't designed to undercut or eliminate agents, nor is it designed to function as a "limited-service" or discount brokerage.

Rather, Kelman says, Redfin Direct offers a different form of service to a different kind of real-estate consumer.

Redfin's typical user is under 40, predominantly male, and an online researcher. He is confident he can find the home he wants and then initiate a relationship with an agent at whatever stage he chooses.

"There's a radical asymmetry between what an agent thinks consumers want and what consumers want," Kelman said.

Agents, Kelman says, pride themselves on helping someone find the right home, but consumers really want the services that begin once they find the home — making a winning offer and closing on it.

"There's an idea that people always need a traditional agent," he said. "Surprise! We agree. Efforts to create fear and uncertainty about this process do a disservice to consumers."

Kelman believes full service won't vanish. But his company may test or launch a medium level of service — something more comprehensive than Redfin Direct, but less extensive than a traditional full-service agent — to appeal to the spectrum of customers' needs.

Agents' landscape isn't black and white

Agents have begun another round of robust dialogue about how the model of full-service agency operates.

Locally, they're focused on the questions their clients are raising about services like Zillow and Redfin Direct and whether they need to emphasize to consumers the benefits of full-service agents.

"Will people believe that the information they get online is the same as what they get from a full-service agent?" said Kimberly Brangwin, a managing broker at Coldwell Banker Bain in Seattle who has more than 20 years of experience. "My company and branch are having a lot of discussions about this."

Brangwin, who remains committed to full-service representation, says she takes no issue with Redfin Direct or with Zillow.

She acknowledges that Redfin's new direct service may be right for a subset of the residential real-estate market, the 15 to 20 percent of buyers who handle transactions without an agent.

Brangwin says Zillow's numbers are a relevant conversation piece for clients and agents but that "we'll say we provide a better comp."

That, Bohutinksy says, is precisely how Zillow expects its numbers to be used — especially because Zillow is still a beta site and will be upgraded.

Pat Grimm, executive vice president of real-estate operations at Windermere, said consumers are driving the new services that are emerging, especially young and tech-savvy consumers who are comfortable researching and buying small goods online. They may flock to a service like Zillow, he said.

"People are asking agents if [Zillow's home-value quote] is what their home is really worth," Grimm said.

A lot of people will use services like Redfin Direct, Grimm says, and "it will be just fine." But others will make mistakes and will return to full-service agent, he says.

Cook says the National Association of Realtors does not favor one business model over another in the world of real estate. One agent Cook worked with on a home purchase has a Web site with separate entry points for customers who want full service and those who want something less than that.

Whether other agents plan to go that direction is a different question.

No matter what, Grimm says, some real-estate brokers will discourage agents from working with Redfin's full-service arm, Redfin Connect, because they don't want to work with a company that also offers discounted service — in this case, through Redfin Direct.

Elsewhere, the feeling is the same.

Will Windermere clients get the option of something less than a full-service agent?

"The answer is no," Grimm said. "There's always a conversation about that, but for us, the answer is no. It doesn't make sense for a full-service agent to work in partnership with a company that also offers a discount service."

Jane Hodges: janehodges@hotmail.com

Copyright © 2006 The Seattle Times Company


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