The Changing Business of Real Estate: Part II

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NAR Comments by Molony

1. "The MLS is not a public utility"
2. "How is IggysHouse going to make any money?"

In Regards to #1, the statement made by Molony appears questionable. The combination of BuySide Realty and IggysHouse has the effect of making the MLS a public utility. What else can you call it when a company allows free listings on the MLS as part of its business model?

In regards to #2, there is arguably not much money to be made offering free listings to the MLS. But remember, there are two sides to the coin. For every buyer there is a seller. Anyone with enough gumption to sell a house by himself/herself clearly has enough gumption to buy a house in the same manner. BuySide will take 25% of that transaction while passing 75% back to the consumer. This is clearly a win-win model for both the consumer and BuySide Realty.

While returning 75% of commissions to the home buyer might seem excessive, it will enable BuySide to capture a far bigger piece of the real estate transaction pie at a much faster clip than otherwise. Customers will like that ratio as well. From a business model perspective, given the sister relationship, BuySide Realty will be able to fund Iggys for perpetuity as long as the overall corporation makes money. So the real question is not "How is IggysHouse going to make any money?" but rather "How the heck are members of the NAR going to deal with lost commissions?"

But it is not just the NAR that is under attack by Iggys. Check out the following list of sites:

Under Attack

• At e-ListState.com California sellers pay $249 for a six-month listing.
• At For Sale by Owner $349 is the fee for Illinois. Other states may differ.
• At Internet Home Services there is a flat fee that varies by area.
• At housepad.com services also vary by location. The listing shown is for Cook County Illinois (Chicago area) and the cost is $299 for six months, and an additional $140 for a virtual tour.
• At Redfin if you are a buyer and find your own home, the company refunds 2/3 of the buyer's commission in contrast to BuySide's return of 3/4 of the commission. On the sell side, the Fee is $2,000 upfront or $3,000 at closing for an MLS listing, sign, lock-box, fliers, photo & staging partners.

While everyone is focused on the problems in subprime lending (tightening credit standards, falling home prices, and mortgage rate resets), few are actually looking at how the business of buying and selling a home is changing. The former is arguably a cyclical problem (although I think we are witnessing a major secular shift) while the latter is undergoing a trend change that is off nearly everyone's radar.

Given the nature of the housing expansion (a 20+ year boom in many places) there is every likelihood of a secular change in two trends simultaneously (housing prices as well as the business model itself). The impact of those trend changes are bound to be enormous, especially to the dinosaurs at the NAR.

Winners & Losers

• Buyside and Iggys are going to be a big winner if their model pans out as I expect it to. But the big winner in this battle is the consumer. Any business model based on performance and service instead of fees and commissions is going to go over very well (given time and proper execution) especially when significant sums of money are returned straight into the hands of the almighty consumer.
  
  
• The big Loser is the NAR. The commission based model of the NAR has faced challenges before, but nothing like this on a national scale. Traditional commission based real estate agents are not completely going away, especially on the sell side. But the numbers of agents needed and the commission structure itself are both under heavy attack. Many real estate agents will not survive the transition.
  
  
• Another loser in this battle will be small for sale by owner (FSBO) type operations. When you are charging $300-$2000 for something that someone else decides to give away for free, your business model is in deep trouble.

In a service based economy where service seems to degrade every month, where personal contact has been replaced by an endless array of automated voice response menus, when it is next to impossible to get a hold of a real live person for almost anything, it is refreshing to see anything that actually rates to improve service. Not only is Iggys/BuySide Realty committed to improving service but they will do so at a far lower cost structure than the existing model, returning in excess of $10,000 to the average customer. I cheer this new model and wish them success in carrying out their goals.