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Virtual Realty

Home Buying on the Web Is Still a Tough Sell

August 06, 2000|JENNIFER OLDHAM | TIMES STAFF WRITER

Today marks the debut of a monthly column on real estate and the Internet. The column will discuss real estate information available on the Web for consumers and how they can best use it.

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When online real estate pioneer Homestore.com debuted 3 1/2 years ago, its flagship site, Realtor.com, was supported by a few PCs sitting in a tiny office in Westlake Village.

Today, more than 300 Dell work stations in Homestore's 80,000-square-foot headquarters power the fast-growing real estate hub, now one of the world's 50 largest Internet sites.

Homestore's tumultuous expansion underscores the Internet's growing influence on the nation's $1.3-trillion real estate industry. The site, with help from the National Assn. of Realtors, or NAR, made myriad home listings available to consumers for the first time.

The association "set the gauge for success for real estate Web sites: the number of listings you have on your site," said David Clark, president and chief executive officer of Homebytes.com. "So in the past few years, everyone focused on replacing the multiple listing service."

Homestore's focus on listings--it has about 1.4 million entries--has made it the most popular real estate Web site. But its exclusive contracts with many of the country's largest residential property listings services raised questions at the U.S. Justice Department, which opened an investigation last spring into possible anti-competitive business practices at the company.

Plenty of other sites are competing with Homestore for consumer attention. In fact, some analysts estimate that there are more than 500,000 real estate Web sites. And recent figures show that four out of 10 home buyers use the Internet, up from only 2% in 1995, according to NAR.

Certainly, the Internet made information that Realtors hoarded until a few years ago, like listings and comparables--prices for similar homes that sold within the same area in the last six months--available to consumers for the first time.

But the nascent online real estate category hasn't lived up to predictions that it would steer consumers away from agents, cut commissions and simplify the frustratingly complex home-buying process.

"The Web has hugely impacted the way people find a home," said Stuart Wolff, chairman and chief executive at Homestore. "But I don't think it's done much to impact how people buy a home and how people own a home."

Until now, most real estate sites have focused on providing buyers with listings packaged with information on relocating, home improvement, schools, crime and financing. Some analysts say this deluge of information has cut the time it takes to shop for a home in half and saved buyers money.

"Based on our surveys, mortgage rates online versus local market rates are on average about half a percent cheaper," said Nick Karris, an Internet real estate analyst at Gomez Advisors, a Lincoln, Mass.-based market research firm. "So on a $200,000 loan we're talking about saving $15,000 over the life of a mortgage."

But the majority of buyers still ultimately rely on real estate agents to help them find homes. In fact, only 4% of buyers eventually purchased a home they found online last year. And it's still tough to get all home listings in one location on the Web.

"The Internet is being used as a secondary information source, like newspaper ads and yard signs," said Kevin Roth, a senior economist at NAR.

A recent association survey shows that consumers use newspaper ads more often than they do the Internet during a home search. And they rely on yard signs for information almost as much as on the global computer network, according to NAR's 2000 Profile of Home Buyers and Sellers.

But other surveys show consumers are pulling real estate information off the Internet, such as statistics on neighborhood schools and crime, that they can't necessarily get from other sources. And in some cases listings online have added features that save consumers time.

For instance, a recent report from Gomez Advisors found that consumers look to the Internet for home listings that include pictures of the home's exterior and virtual tours that showcase a 360-degree view of the home's interior.

Now that the market for sites that cater to buyers is maturing, new entrants are focusing on sellers and on trying to simplify transactions by putting them online. These sites are intended to decrease consumers' reliance on agents by promoting "menu-type" pricing.

But even if the Internet has aided in information gathering, it hasn't saved consumers much money. That may change soon.

Some analysts expect that the Web will ultimately cause real estate agents' commissions to fall, just as sites for investors caused stockbrokers' commissions to drop and travel sites that sell discounted airline tickets negatively affected travel agents' commissions.

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