Have Realtors Been Rendered Useless?

Bill Chee discusses the changing role of Realtors in the age of information

When Prudential Locations CEO Bill Chee first entered the world of real estate some 30-odd years ago, MLS listings were printed on small cards that fit in shoeboxes, and Realtors were their gatekeepers. "Me and my peers would talk about automating MLS listings to create more access to them, but we were the youngest guys in the industry back then, so people just thought we were nuts," says Chee. "But look at how much the industry's evolved since then. Now, thanks to the Internet, consumers have access to all kinds of information."

As a result, real estate firms are changing the way they interact with customers and reevaluating their roles in the age of information. "Whereas before clients depended on Realtors for information, they're now finding their own information and then coming to us for services," explains Chee, CEO of Prudential Locations (which, thanks in large part to former director of research Mike Sklarz, helped pioneer computer-aided real estate analysis). "That's meant a lot of changes for the industry and has made the job of a Realtor much, much more complex."

HB: Having been through several real estate cycles, what phenomenon do you think has most affected the industry?

A: Probably the Internet. Around 1995, when the Internet first hit real estate, it was the kickoff of consumers getting much more involved in the transaction, because it brought more information to the customers. So what you see happening now was created by customers becoming empowered and asking for different things and then evolving the business.

HB: Discount brokerages offer all the usual services and expertise at a fraction of the cost. Has that forced traditional real estate firms to rethink the way they do business?

A: Discount brokerages are not a new phenomenon. They arise every time the market gets hot like this, because there's so much inventory. And then the market switches over, and they disappear. The thing people need to understand when they're working with discount brokerages is Econ 101. Econ 101 is like the grilled-cheese sandwich that had the Madonna on it and sold on eBay for $33,000. It's an extreme example of how, when you open the market up and have more people see it, you get the highest possible price. In a discount situation, generally speaking, that's not the case. So what's more important–the commission, or getting the higher price for your house? We're surprised more people have chosen commission over price.

>> FAST FACT: According to the National Association of Realtors, the typical Realtor spent $858 on technology products, $254 on technology services and $257 on technology training in 2004.

HB: How are traditional brokerages positioning themselves to remain relevant and important to consumers in this new landscape?

A: What's interesting is that customers feel empowered because they found their house on the Net. But if you think about the real estate purchase, it's something you do once every eight or 10 years. So you don't develop an actual skill set to do it. So the question is, how fast can we enable customers to get up to speed?

HB: So firms are doing more consumer education?

A: What's happened is that the market has been dissected into different types of consumers. Some guys say, "Do everything for me." Some say, "I want to be hands on." In the old days, if you wanted to know something, like how big the yard was, you'd have to call me. Now it's, "I saw this house on the net. It's 10,000 square feet, it's three-bedroom, it looks like what I want. Now what else can you tell me?" So now firms need to decide to include or exclude different ways that customers want to do business.

HB: Some companies are accomplishing that by offering services a la carte.

A: Yes, and I think a menu of services is a maturing thing, but, at the end of the day, the business that survives is the one that treats its customers the right way, and that might mean more education. When you talk about a la carte, it's not as simple as ordering off a menu, because the individual services are all kind of connected to each other. When you split them up too much, it becomes very complex. So as long as the consumer knows how they're connected, it can work.

HB: Is the empowered consumer the main factor behind falling commission rates?

A: Overall commission rates are falling, and have been falling for almost four years across the board, but it's very similar to looking at the statistics for real estate. People say, "Oh, the average price fell by $20,000," but it really didn't, because the composition of the market changed. Commissions are falling, but the structure of services is also changing. Consumers are getting smarter. So one of the things we're doing is getting our customers as smart as anybody in the market. The way we do that is by giving them tools that are easy to use. We can give them all the solds, all the listings, we can send them emails and give them charts and graphs to get 'em smart. Because when they're smart, they're decisive.

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