When Bryan Geston set out to buy a home, the first thing he did was log on to LendingTree.com where he described what kind of house and mortgage he wanted. A day later, several real estate agents and lenders contacted him. Then, in a single afternoon, he viewed more than a dozen listings online and visited two places in person. That night he made an offer. The process was painless, says Getson, 23, who moved into his Centreville, Va., home just five weeks after starting his search. "As a bonus," he adds, "I'm getting a Home Depot gift card for $1,000 that I'll use to redo some cabinets."
This is not how most people buy a house, largely because it is not the way the nation's dominant real estate firms, including Century 21, Coldwell Banker, ERA and ReMax, choose to do business. The big guys on the block prefer the old way: their agents usher clients door to door and show house after house. Frequently the houses are closely held listings on which the agents have exclusives, and they pocket a hefty 5%-to-7% commission on each sale. Today that clubby world is being shaken more and more by a handful of upstarts. Internet interlopers like LendingTree, along with regional discounters like Foxtons in the Northeast and CataList Homes on the West Coast, have been gaining traction with a new scenario--one that simplifies and shortens the process for buyers and offers sellers overdue relief on the commissions they must pay.
The dollars at stake are huge. More than 6 million homes are expected to change hands this year, generating sales commissions of $60 billion. Predictably, the big Realtors aren't going without a fight. In response to the new threat, the National Association of Realtors (N.A.R.) has proposed guidelines that would restrict online agents' access to the industry's lifeblood: multiple real estate listings--the Holy Grail for home shoppers--which are maintained on the association's regional databases.
Consumers are beginning to reap the benefits of the heightened competition. Getson's $1,000 gift card came from LendingTree, which used the card, as it always does, to rebate half the fee it collects for referring business to brokers around the country. In this case, the rebate chopped the total commission on Getson's deal from 6% to 5.5%--an important chink in the Old Guard's armor, says Peter Sealey, a professor of technology and marketing at the University of California, Berkeley. "Slowly but surely, technology is coming into play in the real estate market," he says. "As it does, brokers will lose their stranglehold on the process. Commissions ultimately should be cut in half."
That's no small chunk of change. Buying a home is the largest financial transaction most Americans ever take part in. The nation's housing equity--home values minus mortgage debt--is worth more than $7 trillion and accounts for the largest slice of most individuals' net worth. Yet buying and selling remain "horrendously expensive and full of hidden traps," Sealey notes.