Evolution Shift
A Future Look at Today
October 23rd, 2006

Disintermediation Update – Real Estate

Disintermediation is a favorite subject here. Regular readers know that I believe that we are in one of those historical eras when the world gets reorganized. As I have defined it in earlier posts, disintermediation always occurs during these significant periods and there is usually a dominant agent of disintermediation that forces the reorganization. In this period of course it is the Internet.

I have also written about the fact that while the effects the Internet has had on such businesses as the travel industry and stock brokerage are obvious, there are business sectors that are just at the early stages of disintermediation. One of them is real estate. There has been much resistance to change by a large percentage of the residential brokers in the U.S. Others, seeing what is happening and what lies ahead are starting to come up with new business models. I have encouraged this as there is always a way to add value. The ‘way we have always done it’ is not necessarily the only way, and it is increasingly a losing position to take in the residential real estate business. This post points to some recent signs that things are changing fundamentally in this marketplace.

Two weeks ago the Federal Trade Commission announced that five regional real estate listing services had agreed to treat listings from discount brokerages no differently that those from the traditional 6 percenters. The FTC is pursuing administrative cases against additional listing services under the general belief that these services are restraining competition. The crux of the FTC case is that the control and power that traditional real estate brokers wield over regional and local listing services is discriminatory and is restraining trade and competition. The traditional brokers, holding firm to existing commission structures have kept discount brokers offering lower commissions from the listings. The FTC bluntly said that these listing services violated Federal Law.

The settlement with the five listing services requires them to open up all lawful listings without any restrictions. In addition to this ongoing effort by the FTC, the Justice Department is continuing forward in year old its’ suit of the National Association of Realtors, charging violation of anti-trust rules.

As many of you know, ‘virtual tours’ are available for thousands of on-line listings. Recently I have seen articles about brokers creating video podcasts for properties. The interesting thing with this trend is that the traditional agents are using the Internet, the medium that is disintermediating them, to try different business methods. That is a very good first step to altering how business is done. But please don’t think you can embrace this newness without fully embracing this newness. When the winds of change blow, they usually blow through the entire house, not just the corner of one room.

As linked to above and again here, the definition both of disintermediation and the business that are ripe for being disintermediation are clearly applicable to the residential real estate agency business. To all my friends in this business, and to any others reading these words, please, please, don’t be ostrich like in your reaction to this inevitability. Accept it and reinvent how you do business and how you charge for your services. If you don’t, you will have that most unpleasant experience of waking up one day saying: “What happened?”

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