New Canadian Online Home Sale Site

3 Jun ’05

Rob Carrick writes in the Globe about a new website aimed at the for-sale-by-owner real estate market.

The new service looks to be the strongest of many before it that have tried to break the lock that the traditional real estate market has, via its captive MLS system, on home listings. Quotes:

A business venture such as this sounds like a natural outgrowth of a hot real estate market built on strong demand, but president John McDonald said there’s a more important trend at work here. To him, real estate is ripe for the sort of change that has happened in investing, where the Internet has allowed some service providers to offer a much cheaper do-it-yourself alternative.

“We’re on the edge of a major change in the real estate business,” he said. “It’s one of the last old-school industries that has not really been affected by the Internet in a way that has changed their business.”

Carrick’s article features the usual, well, obfuscation, by the industry spokesperson du jour:

Mr. Soper [president and chief executive officer of Royal Lepage Real Estate Services] recalls a few Web-based discount real estate services cropping up in the dot-com boom in the later 1990s. But while some have managed to be somewhat successful in the United States in one form or another, the concept of selling a home yourself hasn’t really taken off in Canada.

“It’s likely because the value isn’t there,” Mr. Soper said. “If it were, a larger and larger percentage of people would be migrating to that sort of a transaction, and it’s just not happening.”

Well, the real reason FSBO has never really taken off, of course, is because the industry effectively has a lock on MLS listings. Buyers and their agents look at MLS listings – FSBO’s don’t get comparable attention because they are harder to find. Buyers’ agents don’t show FSBOs to their clients because their MLS listings provide a commission, and FSBO’s generally don’t (though they could, and likely would, if they could get advertising visibility). So, buyers never find out about FSBO’s except though the seller’s own advertising efforts. And advertising is expensive.

This is why the U.S. Justice Department is considering an antitrust investigation against the U.S. real estate industry. See also the WSJ article here. Must have slipped Soper’s mind (oh, that antitrust investigation).

To my mind, real estate agents provide three types of service. First, they help project manage the sale process. Second, the provide information about similar sales to help with valuation of a home to be sold. Third, they help with information about homes for sale.

#1 continues to be a useful value-add, for some people. But the internet, had it been left alone to do its business, would by now have obliterated the traditional value proposition for #2 and #3. And if it is allowed to do that, the only way for commissions to move, of course, is down. Which they will, once we can get past the obfuscation.

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