Everyone is on the internet nowadays — including home shoppers.
And that’s why real estate sites are so popular: They provide up-to-the-minute information on prices, values and listings, school zones and neighborhoods, and surrounding homes and businesses. There’s a lot of information online real estate sites put right up front.
Sites tend to make the same claim to customers: They are more transparent than the traditional retail brokerages. They might tell you that you can sell your property faster, at a higher price, for less commission with the same level of service expected of traditional real estate agents. They might offer to buy your house for cash, and to close whenever it suits. Sounds great, right?
But I believe there are a few things they aren’t so clear about.
I’m not disputing that these sites can be a useful resource and can help consumers to sell and purchase real estate. But some make bold promises, and they aren’t always 100% transparent. Many customers (and even agents) don’t quite understand what they are and are not getting. Like with most things, ambiguity can take wishful thinking to a heightened, and possibly unfortunate, level.
Web-based real estate businesses, like traditional brokerages, are in business to make money. Traditional brokerages earn revenue from commissions on sales and rentals. Web-based real estate businesses do the same, as well as earn money in other ways, too. In the interest of transparency, let’s talk about how web-based real estate businesses are monetized.
Traditional real estate agency sites
Agency sites: Nearly all real estate agencies, and many individual agents and agent teams, have proprietary websites used to present their own listings, market reports, and a variety of community and real-estate related content. Some link to partnering businesses and in some cases to outside advertisers, but in general the agencies pay for the sites, which serve primarily to promote the business of selling and renting their own listings. These sites are the digital version of the multi-page print brochures agencies produce.
Proprietary real estate portals: A portal is a gateway to a collection of related business sites — sometimes considered “one stop shopping” where consumers can search for listings posted by several real estate agencies on one site. Realtor.com, the former HREO.com (Hamptons Real Estate Online) and the many multiple listing services (MLS) are such portals. These portals may be owned by an independent party, but are typically financed by the participating businesses or members. Some supplement costs with advertisements and links to business partners. The print version of these portals are giveaway glossy “magazines” that contain advertisements from many different agencies in an area.
And the other sites …
Commercial real estate portals: While commercial portals function similarly to those above, their missions are entirely different. Zillow.com and homefinder.com are examples of such portals. Real estate agencies either voluntarily feed data to the sites, pay a fee to be included on the site and in other models the sites may scrape or copy a subset of the data from other sites.
Commercial portals get revenue in several ways. They may sell advertising space alongside listings to agents. The agents paying for promotion by the commercial portals get a ready link to customers wishing information about the associated property. The fee to the agent is typically contracted for a six to 12-month term and is based upon the estimated number of listings assigned, the relative value of the zip code or the number of impressions. Not always, but too often, the agents have never seen the associated listings, and may be unaware that they are assigned to a particular listing until a customer makes contact.
Referral sites: There are oodles of these businesses, which serve to match home sellers and buyers with real estate agents. For the most part, the referral is free to the consumer; the “vetted” real estate agents pay a set fee per term upfront or a percentage of the commission if and when the referral concludes in a closing. The percentages are typically 25-35% of the referred side. Customers should understand that the degree of vetting agents varies from anyone who agrees to pay for the association to requirements for licensure and/or membership to, less commonly, actual review of an agent’s past sales and references.
ibuying: An ibuyer is a company that buys and sells homes. In the words of one of the older and popular companies, they offer home sellers a discounted sale price in exchange for the convenience of not having to prepare for a sale, run the risk of buyers backing out, or having to wait for buyers to obtain a mortgage. They present a cash offer and, if accepted, inspect the property. If work is needed they will adjust the offered price accordingly and close the sale at the seller’s convenience. They usually also charge a fee for the purchase. Some work with licensed agents, other do not. There are several such companies and almost as many variations on the ibuying business models. All aim to make the sale quick and easy for the seller. Once owned, the company lists the home for sale.
Another way many of these sites are monetized is through ads paid for by advertisers or for referrals generated from links to partner sites. A common link is a question like: What are your monthly mortgage costs? If you link to such a calculator, in no time your name, and contact information will be available to businesses in two industries: real estate and mortgage lending. Expect to be bombarded with marketing offers via email, texts, and banner ads from them and their partners, and know that your contact information will be sold to other advertisers and marketers. Not necessarily a bad thing, but maybe not what you’d expect.
Like everything else the real estate industry has and will continue to change. While progress is often for the best; change is often hard. Customers should be reminded that it’s not easy to sell one’s home — for many reasons. If something sounds too good to be true, it may very well be.