Commercial Property
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Realty Times" Five-Year Predictions From 1999 Mostly Right
Like having a boy or a girl, your chances are fifty-fifty. In 1999, Realty Times made several predictions for where real estate would be in five years. We were mostly right, but not always for the right reasons. Our predictions were: On-line home shopping is here to stay. What we said then: The trend of buyers taking charge of their own transactions will be impossible to reverse. Traffic numbers on Internet home search and loan sites indicate that buyers are enjoying the on-line experience too much. Consumers can go on-line, obtain the information they want anonymously, and then act in their own time. Service providers are insuring that they stay on-line by offering access to homes, comparables, loans, buying and selling how-to"s and more. Consumers can literally find everything thing they want on-line, including tours of homes. Currently, consumers outpace Realtors in the adoption of technology. Over 40% of American homes use the Internet, yet Realtors own only 77,739 modems, according to Realtor Magazine.This means they can access and act on information more quickly than they can with the services of the average Realtor. Realtors who are able to reverse that trend and provide services and information faster than the consumer can, will survive. What we say now: It"s nice to be right. According to the NAR"s 2004 Profile of Home Buyers and Sellers, over half of buyers (53 percent) used the Internet frequently during their search. Good news for the real estate industry is that online consumers appear more likely to use a Realtor. At least, agents didn"t lose ground - 90 percent of all buyers used an agent. Technology has raised the bar for Realtors. What we said then: Realtors must first and foremost realize that they are no longer the first point of contact for the consumer, and that their value to the real estate transaction is diminishing in the eyes of the consumer. Consumers will have no tolerance for agents who can"t perform functions faster, more efficiently and more accurately than they can for themselves. That means the technology bar will be raised very high for Realtors. The educational background, technology investment, and ability to successfully combine high touch/high tech skills will cause the bottom rung agents to drop out of the business. As the investment required to become a real estate agent is raised, the industry will become more sophisticated as a result. What we say now: What we didn"t know then was that a major recession, jobless recovery would help create a loose money policy that would lower interest rates, helping to fuel a boom in real estate. In five years, the membership of the NAR grew 25 percent to over a million members. Many of these newbies had technology experience because they were coming from the downsized technology industries. While they could create their own Websites and handle their own search engine placement, what they couldn"t do was compete as well against the agents who had already weathered upturns and downturns and were relying on years of referrals, proving that age and experience have their merits. New technologies meant new competition - not from agents - but from third-parties who could enter the industry as brokers and then refer Internet leads for cash or at closing. Realtors now found themselves competing to be found against a lot of deep pockets. So, yes, the industry has become more sophisticated, but it has also become much more expensive to do business as individual agents. Realtors will alter their services. What we said then: So what can Realtors do to survive and thrive? They have to restore the consumer"s faith in their services and they must provide services that consumers can"t perform as well for themselves. First, they must become more technology-savvy than the consumer, they must know how to locate, retrieve and share information quickly, efficiently, and most importantly - accurately. They can not depend on outside sources for numbers. They must verify home histories, tax data, and comparables themselves, because outside sources, including their own MLS information systems, simply can not be trusted. As buyers and sellers learn that they can obtain the information they need from municipal sources, they will discount the Realtor"s services even more than they do now. Second, Realtors must diversify into specialties. Representation is becoming a more important issue to buyers and sellers. Buyer"s agency and selling agency will become more exclusive, someday bringing dual agency to an end. Relocation specialists, senior specialists, new home specialists and first-time buyer specialists will become more common as agents seek to identify and meet market needs. What we say now: Service issues have become so critical that the NAR and its subsidiary associations (Touchstone for Excellence) are looking to put together new standards of practice that will put control back in the hands of brokers over their agents. Meanwhile, complaints against agents are rising, says California"s Department of Real Estate, by 29 percent in June over the previous year, and up 33 percent from three years ago. Most municipalities haven"t had the wherewithal to upgrade their systems to allow consumers greater access to data. As long as it has to be collected the old-fashioned way, agents will still be in charge of the information that consumers need to do transactions. Dual agency is coming to an end, but it is not being replaced by agency, as we thought it might. Non-agency or facilitation is the representation that is spreading across the states by statute. In fact, exclusive buyer"s agents are fewer in number, but that"s largely due to disagreements over how to handle exclusivity and political in-fighting. Agents are adopting specialties, but they are combining them with designations and certifications with broader appeal. Agents will charge fees for services. What we said then: Realtors will find themselves marketing a menu of services to buyers and sellers, creating more of a contractor business model. Like contractors who are paid a deposit, an interim fee, and a closing payment, agents will begin to charge fees along those lines. These may include search services at a fee to prospective buyers and sellers, or a fee to put a seller"s home into the MLS system. Instead of giving away comparables for free, the comps will come with an analysis, much like an appraisal. These fees will represent a monumental shift in the way Realtors are paid - from the back end of the transaction, to being paid up front or throughout the various stages of the transaction. What we say now: We were almost wrong on this one. Fee for service is trucking along, but it has been outpaced in the news by discount services offering rebates to buyers who shop for their own homes online via virtual office Websites. Making news lately are MLS-entry-only fee for service, which wasn"t exactly what we had in mind. Agents still rarely charge for comparables. Agents will return to the center of the transaction. What we said then: The goal of forward-thinking real estate industry leaders is to originate, manage and close the real estate transaction on-line. For that to happen, almost every service provider with a role in the transaction will have to cooperate to meet this goal, including modifying their business models to accommodate on-line service delivery. That means teaching people who have never touched a computer, such as many inspectors, appraisers, and closing agents, to put their information on-line. The NAR would like to position the Realtor as the transaction manager. The Realtor will initiate the transaction with the contract, manage it on-line in a secured pass-word protected environment and assure that all the pieces fit for a seamless on-line closing. As the pieces of the transaction come in - appraisals, inspection reports, and loan approval, the puzzle comes together. The Realtor will communicate on-line with the client. The client will be able to follow the progress of the transaction, alongside the Realtor, in real time. What we say now: Brokers are taking over this role. They are capturing leads and turning them over to their agents, and having the process overseen by transaction coordinators. Loans will close on-line. What we said then: Loan closings could happen on-line within five years, but only if the monumental task of getting all information providers to use the Internet is met. Then there is the problem of signature verification. The technology exists to do it now, but no closing agents have come forward who are willing to insure property titles conveyed by electronic signatures. Until that day, homes will not close on-line. The most important thing for agents to be aware of is that technology will be cheap and indispensable and it will provide instant communication between all parties involved in the real estate transaction. Just as 99% of homes have televisions today, in five years, just as many will have computers or at least access to the Internet. That means the consumer has the same advantages and abilities as the agent. We think we have instant communication now, but we are far from it. As long as the parties to the real estate transaction use different levels of technology, everyone will be slowed down to the lowest denominator. If one agent can e-mail a contract and the other agent doesn"t have e-mail or even a fax machine, then the second agent clearly offers less value to the transaction. Consumers will not tolerate it, and will vote with their checkbooks to lower commissions to agents who don"t provide value. Agents will find themselves paid according to their ability to provide service, which will fuel the fee-for-service business model. What we say now: HUD (and we don"t mean Paul Newman) is trying to reform RESPA, but a changing of the guard in upper management has slowed the process. What RESPA reforms are being considered are single-packagePages: [1] 2