We are about to experience an evolution in how people buy and sell homes. This is significant in that it impacts the +60% of current U.S. households that are owner occupied. It’s also important for those that currently rent homes, as home ownership is a cornerstones of the American dream. Here’s a quick primer on some of the key inflection points over the past 100+ years.
Real estate brokers formed local real estate associations that allowed member brokers to share information about properties for sale. It was at this time that brokers agreed to compensate each other for helping to sell each other’s properties. While this exchange of information was conducted in person, it evolved into weekly listings that were distributed to association members.
The National Association of Real Estate Boards created the “Multiple Listing Service,” which banded together the hundreds of local associations.
Real estate listings started to become publically available on the emerging consumer internet through services like Prodigy.
Zillow launches, bringing real estate listings direct to consumers.
Why is this direct to consumer movement significant?
Until the mid-2000’s, most consumers relied on real estate brokers / agents to access properties that were on the market. This meant that brokerages controlled the flow of information and could charge commissions for their services. The next step in the real estate evolution is happening much faster than those we had seen in the past. In the first quarter of 2011, Zillow’s monthly unique user count was somewhere around 20 million. As of the first quarter of 2017, that number had jumped to 160 million monthly unique users. And Zillow claims that 80% of U.S. homes have been viewed on their platform.
While the number of people viewing homes online is staggering, the interesting thing is the change in how people end up purchasing homes.
In 2001, only 8% of people used the internet to find the home that they ended up purchasing. At that time 47% of people relied on agents to help them find homes. Fast forward to 2016, where 51% of people found their homes online, versus the 34% of people that used agents.
We’ve seen this before
When “inventory” that was once controlled by a few brokers makes its way ito the masses, industries are transformed. Travel, perhaps one of the closest analogies to what is currently happening in the residential real estate market, was forever changed in the early 2000’s when online travel sites like Expedia, Travelocity and Orbitz began making inroads into the 990.3 billion dollar travel market. In a 2002 New York Times article, William Maloney, Executive Vice President of the American Society of Travel Agents, explained that “there is a sea change going on. Travel agents for a long time had a monopoly on two things. One was information. They had the airlines’ computers. The second thing was documents. If you wanted a ticket, you went to a travel agency. Now they have lost those monopolies. Information is plentiful, and tickets are irrelevant.”
Since the mid-1990’s, the number of travel agencies has shrunk from 34,000 to 13,000 and online travel sites transact 565 billion dollars annually. Consumers have found that they can do a better job booking travel themselves (and pay less) than when using agents. As a result, travel agents have moved on from the mass consumer market and have focused their attention on niche sectors like luxury, corporate and specialty trips.
Consumers of all ages are being conditioned to transact online
We are seeing massive changes in how people of all ages shop for all goods and services. Online home good retailers like Wayfair are increasingly becoming the preferred way for people to shop. In Wayfair’s 2016 annual report, the company explains “as millennials age, start new families and move into new homes, we expect online sales of home goods to increase. Additionally, we believe the online home goods market will further grow as older generations of consumers become increasingly comfortable purchasing online.” They go on to assert that “the lack of an easy-to-browse, one-stop shopping experience with massive selection has led to dissatisfaction with brick and mortar home goods shopping. In contrast, Wayfair.com offers over 2,400 bedroom sets across many styles and prices, which mitigates the need for a consumer to visit multiple stores to find the perfect item at a price she can afford.”
This focus on convenience is likely a contributing factor in the move from “spending a weekend driving around with an agent” to having real time access to everything that’s on market.
So what’s next?
With nearly all the residential inventory accessible online and consumer sentiment leaning towards trusting online transactions between both companies and individuals, we are about to see massive changes in the way people buy and sell real estate. Taking a cue from the travel space, traditional real estate agents will likely begin to specialize in sectors of the market (e.g. luxury, specialty, international, etc.) that require attention and hand holding. For the rest of the market, the winners will be those that focus on building experiences that cater to the way that today’s consumer wants to “shop.”
In the coming months, I’ll be sharing some of the work we are doing at UpsideDoor to build the next generation platform and experience for helping homeowners buy and sell homes.
Find out more about us here.
For more posts about selling homes today look at:
- What is Takes When Selling a Home on your Own
- 8 Steps to Getting Your Home on the Market
- Maximize your Home’s Value by getting it Ready to Show