Could real estate go the way of the travel industry? Not quite

Could real estate go the way of the travel industry? Not quite
  • PublishedMarch 24, 2024

Technology has revolutionized how people book travel, buy groceries and manage their everyday finances. Yet, the process of buying a home has withstood many similar changes.

Sites like Redfin and Zillow provide a way for buyers and brokers to connect online, but the role of real estate agents in closing purchases has persisted.

Now the seismic settlement between the National Association of Realtors and home sellers could change that, as home buyers and sellers face the prospect of paying their agents separately, instead of sellers paying a commission split between both sides. That, in turn, opens the door for new technology to reshape the agents’ role, as people in other jobs — from the world of finance to travel — have already experienced.

Given the settlement, Tomasz Piskorski, a professor of real estate at Columbia Business School, said buyers’ agents might see their work simplified through technology consumers can use themselves, similar to changes in money management.

“I think we are reaching a point where there’s going to be a lot of innovation in the housing market,” Piskorski said. “One simple idea is: Do homeowners really need a real estate agent?”

Nearly half of home buyers began their search online, according to a 2023 report by the NAR, and many buyers do home research themselves.

“Ultimately, people will understand what real estate agents really do, especially on the buy side,” Piskorski said. “The whole business model actually under which we operate right now makes these fees not very transparent to home buyers.”

Danielle Hale, chief economist at Realtor.com, told CNN in an email that technology could make things easier for buyers in an industry that has often been opaque.

“Ultimately, if these changes bring about greater consumer transparency, that’s a good thing,” Hale told CNN.

But even with the possibility of major changes, Hale said, one thing will almost certainly remain the same for real estate agents. Buyers, she noted, “will likely be reluctant to navigate the financial decision of a lifetime without their professional expertise and support.”

Finance, travel and other models

The NAR settlement essentially decouples the buyers’ and sellers’ agents. While previously home sellers have paid a commission (generally 5% to 6%) that was split between agents, the settlement makes it so home buyers might be on the hook for paying their agent up front.

Experts told CNN that could affect how home buyers think about enlisting an agent.

Currently, the framework of real estate solely emphasizes the buy and sell transaction, said John Bodrozic, co-founder of HomeZada, a real estate tech company. Yet, as technology simplifies the process, agents will have to advertise their value as long-term consultants in a niche industry.

Bodrozic said tech will enable real estate to become more like personal finance in this sense.

“I really believe it’s a bigger picture here, which is the opportunity for the real estate industry to think of their clients as a never-ending client that I want to keep happy and provide value to throughout their entire journey,” he said.

Bobby Juncosa, chief technology officer of Edgewise, a real estate tech company, said there are lessons from how travel agents changed as technology has allowed people to search for, compare and purchase flights on their own.

“The buyers’ agent will become, this is the part that’s a little bit more controversial, but a little bit more travel agent-esque, and they’re kind of pointing you in the right direction,” he said. “You know, ‘this neighborhood has good schools,’ all things that are public information that you could find out on your own, but you’re hoping for that local expertise.”

A lot of real estate transactions could be digitized, and this settlement may provide impetus for that, Piskorski said. He said developments in tech that organize home inspections, make arrangements to hire lawyers or fulfill other duties of a buyers’ agent, would “significantly reduce the costs associated with home transactions.”

Even as technology expands further into the real estate industry, Piskorski said he thinks a fully automated process, such as an Amazon marketplace for buying and selling homes, is still far in the distance.

The real estate market, he said, is “too complex to be completely automated on a computer.”

Juncosa said as the industry adjusts to the settlement rules, agents will become more like consultants throughout the home buying process, offering value-add insight. Yet what ultimately differentiates a travel agent from a real estate agent is the value and risk associated with the purchase.

Purchasing a home is a major life decision, and some people will always benefit from the assurance of a broker, Juncosa said.

A key point of home buying is the behavioral aspect, Piskorski said. “Some households just want a human being to be with them, to assure them that this is the right decision,” he said.

Ultimately, Juncosa said that agents serve a fundamentally human purpose: reassuring homebuyers about the biggest financial decisions of their lives.

SOURCE: CNNNEWS

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