Last Updated on December 13, 2021 by Mark Ferguson
I hear all the time how websites like Zillow and Trulia are going to replace the real estate agent, much like the travel agent was replaced by online travel sites. I see posts on forums or get emails explaining why real estate agents are paid too much and the industry must change or technology will destroy it. While it is true that technology has made the house buying and selling process easier, I don’t think people realize how valuable real estate agents are. The biggest value a real estate agent brings is not the hours they spend taking pictures, marketing a home, or writing contracts. The real estate agent’s biggest value is their experience pricing homes, negotiating contracts, and getting their buyer or seller the best deal possible. The tricky part about real estate is every single house is different. The more experience someone has the better they can value, market, and negotiate, which online sites do not do well.
How are online real estate sites changing the real estate industry?
Many people use Zillow, Realtor.com, Redfin, Trulia, and other national websites to value their homes, find listings and get real estate-related information. These sites have made it much easier for consumers to find homes for sale and figure out the value of their homes. Many people feel that the sites can easily replace real estate agents because consumers no longer have to rely on a real estate agent to sell a house, market it or find a home for them. While the general public can use these sites to find homes for sale, value homes, and market houses, that does not mean it is a smart move.
There is a lot that goes into buying and selling houses besides determining the value and finding homes for sale. Real estate agents handle the contracts, paperwork, marketing, negotiating, and showings. One more thing to consider is that the large sites may offer values and home listings, but that does not mean their values are correct or they are showing all of the homes for sale.
How accurate is online information?
The large, national websites that list houses for sale are using syndication to bring those listings to the general public. Zillow does not own that information and it is not public, because the pictures and listing descriptions are copyrighted material. Many people do not realize that by using only those sites for their real estate information, they are not getting the full picture. Here are some issues with the national websites and the data they deliver.
- The national websites that use syndication are not showing you every house for sale in the MLS. Many people do not know this, but Zillow and other sites have to get permission from Realtor’s and MLS systems to market those properties. While it appears Zillow has all the houses for sale on their site, agents and MLS systems do not all agree to list their properties on Zillow.
- The national syndication sites also do not update their information as quickly as the MLS does. Information on Zillow can be days behind on price changes, houses going under contract and new listings. We get calls from buyers asking about listings on Zillow that they think are available that are actually under contract all the time.
- The agent listed on the properties on the national sites are not always the listing agents. Many of the sites that list properties that are for sale also show real estate agent information along with those properties. While it may appear that the agent listed is the listing agent, most of those agents pay to be listed on the website and have no affiliation with that property.
- The values given by Zillow and other sites can be extremely inaccurate. Prices can easily be 20 percent higher or lower than the actual value and many consumers assume the value estimates are accurate. Pricing your home too high or too low can cause the seller to lose a lot of money. In most cases, pricing your home wrong will cost you much more than the real estate commission you were trying to save. Here is a great article on how inaccurate Zillow prices can be.
If you are using large syndication websites to look for houses you are most likely missing out on listings that are for sale or seeing the listings too late. You are also getting outdated information and inaccurate property values. We also recently saw Zillow fail miserably at the house flipping business in some part to their valuations being way off.
Why do people think that real estate agents will become obsolete?
Zillow and other sites have stated they have no interest in becoming a real estate brokerage. However, there is still a large portion of people who feel the sites will become real estate listing services where sellers can list their homes for sale and buyers can purchase them. We saw that was not the full truth when Zillow created real estate offices to sell their flips.
Even Zillow had to hire agents to sell their flips for them! Many still feel that real estate agents will have to drastically reduce the commissions they charge or else consumers will sell houses themselves and leave agents out of the business. Here is why I think that will not happen and the system will not change much in the near future.
- We know how inaccurate computer generated values can be. All real estate is different and part of a real estate agent’s value is knowing how to price homes correctly. Price a house too low and you leave thousands on the table. Price a home too high and it will sit on the market and cost the seller thousands as well because the listing becomes stagnant. Statistics from NAR show for sale by owner homes sell for much less and take much longer to sell than houses listed by a real estate agent. The typical FSBO home sold for $260,000 compared to $318,000 for agent-assisted home sales. These statistics include homeowners who used the MLS and online marketing to advertise their home for sale by owner.
- If you use a website like Zillow to sell your house you have to handle all the tasks associated with selling the house still:
- finding a title company
- appriasal issues
- inspection issues
- lender issues
- earnest money
- writing contract
- reviewing contract
- knowing who typically pays for what
- One of the biggest factors is that real estate agents usually do not charge the buyer anything. The seller of the house pays for both the listing agent and the buyer’s agent commission. Why in the world would a buyer not use an agent if it costs them nothing? When a seller tries to sell their home without an agent they are stuck without representation, while the buyer will have representation. If they don’t want to pay for the buyer’s agent they will severely limit the number of buyers who will look at their home and cost themselves money. If they pay for the buyer’s agent, pay for the marketing and consider all the time they have to spend to digest contracts and set up showings, they aren’t even saving any money. That does not take into consideration the buyer’s agent has a professional working on their side who is better at negotiating and experienced selling houses. This is why for sale by owner houses sell for so much less than regular listings.
- While there are real estate agents who are charging low fees to clients to simply list their home on the MLS, they still run into all of the same problems without agent representation. If you get into legal trouble are you going to hire the cheapest lawyer you can find because they are all the same? No, you hire the best lawyer you can afford. If you are selling the most valuable thing you will ever own (a house), do you want to try to sell it yourself or use the cheapest real estate agent you can find? No, you want to use the best agent you can afford so that you get the most money for your house.
Why can’t sellers use an appraisal to value their home?
I also hear the argument that a real estate appraiser can be used to value a home instead of a real estate agent. It is true that real estate appraisers value homes, but the main objective of an appraisal is to verify the value, not determine value. Banks use appraisals to verify that the price they are lending on is what the home is actually worth.
After the last housing crisis, the entire appraisal system was changed to stop inflated and fraudulent appraisals. This has made appraisers very wary of appraising houses too high. This is why when you get an appraisal on a house you are buying, no matter how good of a deal it is, the appraisal will almost always come in right at or slightly above the contract price. When you refinance a house, you will also find appraisals tend to come in lower than market value, because the appraisers are being careful not to come in too high and risk being investigated.
Appraisers also do not use active comparable properties to value homes, they only use sold comparable properties. By definition, the appraisers are not supposed to value homes higher than comparable sold properties, even in a very hot market. If an appraiser runs into a property with very few sold properties to compare it to, the appraiser can have a very hard time valuing the property. Many times we have appraisers asking us for comparable properties and ideas on how to value the property. A real estate agent actually has more flexibility when valuing properties and can use active comparable properties and market trends to more accurately value homes.
Lawsuits and liability when selling homes
Another issue I run into all the time is problems that come up with the selling or buying of houses. People forget to put things in writing, people make promises that never happen, and people misrepresent what they are selling. In almost all cases where there are big problems with the sale of a property, real estate agents were not involved. The contract in Colorado is more than 18 pages long and it covers a ton of situations! If you are buying or selling without an agent it is almost impossible to cover every situation even if you are using a lawyer. Lawyers are great for certain situations, but if they are not experts in sales contracts they may miss things as well.
Real estate agents can make mistakes as well but they have insurance especially to cover those mistakes and they have a broker who is responsible for them as well. If a problem comes up, there are many more ways to solve those problems if agents were used.
Will the real estate sales industry evolve in the future?
I do believe the real estate industry will evolve and agents will have to change with it. Real estate agents will have to become more tech-savvy, they will have to learn to use syndication websites and explain their benefits and downfalls, and they will have to be able to explain their value. I hear stories from sellers all the time about how they sold their house for sale by owner in one day and saved $15,000 in real estate agent commissions. What that seller does not know is they may have underpriced it and cost themselves at least $30,000.
That is what all this comes down to. If you sell a house yourself without an agent using one of the large syndication websites or paying a low fee to put your house in MLS, is it really saving you money? On the surface, it may look like you are saving a commission, but in reality, you are most likely leaving money on the table by not valuing your home correctly or knowing how to negotiate. On top of that, you have to figure out the contracts, marketing, showings all yourself. I think most people realize the benefits of listing houses themselves are not worth the time, effort, or possible loss of money and that is why the real estate sales industry has not changed very much.
Other industries that have changed a lot, like travel agents, stockbrokers, and even car dealerships have changed because almost anyone can look up the value of those goods or commodities and be fairly certain what the market value is. Because every piece of real estate is different, it is much harder to value, and not valuing a property correctly can be a huge mistake.
I do not think lawyers are going anywhere because they are incredibly important for many situations as are real estate agents. In fact, most states grant real estate agents the ability to practice a limited amount of law in the house buying and selling process. I sell a lot of houses and while I own a real estate brokerage I would still use an agent if I buy properties in other states I am not licensed in. Buying and selling houses is not easy!