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The Internet has already made many other financial transactions cheaper and simpler. Stockbrokers once routinely charged $250 for trades that can now be done for $15 on the Web. People who buy a car or truck online pay an average of 2% less than those who walk into a dealership, studies show. Travel deals are so prevalent online that hotel owners normally offer lowest-rate guarantees, which drive down the average price of a room. Yet for the most part, the real estate industry has managed to shield itself. "The way real estate is sold hasn't changed since Eisenhower was President," says Eric Danziger, CEO of ZipRealty, one of the new online real estate firms that generate most of their business on the Web. "We're trying to change that."
Danziger's company and others are preparing for battle. ZipRealty and HouseValues, another online firm, each raised tens of millions of dollars late last year selling initial shares of stock to the public--in part to fund a marketing blitz. LendingTree was sold to Barry Diller's IAC/InterActiveCorp in 2003, giving it deep pockets to jump-start its real estate ambitions. In just a year, LendingTree has gone from zero listings to more than a million. Foxtons, which is owned by London's biggest real estate firm, will relaunch its U.S. business this month with a marketing push of its own, playing up Web benefits and 3% commissions--and sending 200 agents into the field in a fleet of BMW minis decorated with flowers.
All these new entries--as well as a slew of real estate websites from Domania.com to Houseandhome.msn.com--have helped make home buying more efficient. Consumers who buy their houses via the Web spend slightly less than two weeks looking at homes, on average, visiting six properties in person, according to the California Association of Realtors. That compares with spending more than seven weeks and looking at 15 homes, on average, for those who don't use the Internet. As a result, the new online agents can show more homes--and charge lower commissions.
Since 70% of all home buyers now initiate their search online, even traditional real estate firms embrace the Web. Century 21 and the other dominant players operate their own websites, and the N.A.R. puts up 95% of all listings in the country on its Realtor.com Yet the industry has a keen interest in freezing out discounters and Web-based firms, which would like to put those listings on their own websites and offer them at discount commission rates. Cendant, which owns franchise rights to Century 21, Coldwell Banker and ERA--and is the industry heavyweight--submitted a paper to the real estate-industry trade group in 2003, warning that Web-based firms "present the potential to undermine the profitability of real estate brokerage firms and increase costs to consumers." Says Mark Panus, spokesman for Cendant's real estate division: "Listings obtained by real estate brokers are their work product, and for others to use that product without approval is wrong."