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Realtors are abandoning a listing ship

The housing crunch and Internet are shrinking the ranks of agents.

May 25, 2009|Peter Y. Hong

Marco Huerta and Youngmin Bae bought their Burbank home without ever meeting their real estate agent. Instead, they scoured listings for their favorite neighborhoods, haggled over prices and even wrote their offer using Marco's cellphone.

There was no housewarming plant on the porch when they moved in, but the couple aren't complaining: They received a $10,000 check as a "rebate" from their agent's 3% commission.

"It's a great incentive," said Marco Huerta, 32. "This is what capitalism's all about."

Experiences like these are leading some to wonder whether Realtors may soon go the way of travel agents. Already weakened by the sour housing market, the profession faces increasing challenges from Internet-based services that help people save thousands on a home purchase.

The number of agents typically declines in a housing slump and rebounds when the market recovers. But this time, "when we see an upturn in the cycle, any recovery in the ranks of residential real estate brokers will be limited by a reduced need for their services," said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate.

"The real estate brokerage industry is not going away, but the combination of efficiency gains via the Internet and the cyclical downturn will both be significant forces to their rapidly shrinking ranks," Gabriel said.

The National Assn. of Realtors reports a 13% drop in membership since 2006.

In California, which has been hard hit by the housing downturn, just 2,030 people took examinations for broker and agent licenses in March, down from more than 18,000 in March 2005, according to the state Department of Real Estate.

Although the weak housing market accounts for most of that decline, some real estate agents acknowledge that the Internet is forcing longer-term changes.

"Our monopoly on information is gone," said David Emerson, a Lakewood broker for 25 years. "The Internet changes everything. . . . The numbers [of Realtors] will diminish."

For decades, agents generally had the only reliable access to complete, detailed listings of all properties for sale. They would select homes from the lists to show buyers, then drive them around to view properties.

Sellers relied on their agents to research other home sales to set a list price and to talk up the property to other agents representing potential buyers.

Now, free websites provide home sales listings as well as the prices that homes sold for -- valuable information for prospective buyers trying to fashion an offer. Some websites even enable people to buy and sell properties.

The National Assn. of Realtors sought to restrict information that Internet real estate brokerages could publish, but the U.S. Department of Justice fired back with an antitrust lawsuit.

The settlement of that suit last year essentially ensures Internet brokerages can post the same types of home sales information that traditional brokers provide.

That has created an opening for Seattle-based Redfin Corp., the brokerage Huerta used to buy his home.

Redfin agents are salaried employees, not on commission. The company collects the usual 3% commission share from a home transaction and rebates a portion of that amount to the buyer -- currently 50%.

Huerta's Burbank purchase was a good fit for the discount brokerage model. It was a foreclosure being sold by a bank eager to unload it, and the bottom of the housing market is teeming with eager buyers such as Huerta.

Still, Web-based brokerages account for only a small fraction of home sales. Nearly 14 million homes were sold in the first three months of this year; Redfin sold just 1,300 homes all of last year.

Some traditional agents say that operations such as Redfin will eventually thin their ranks, but say many home buyers and sellers will prefer having a professional handle their transactions.

The Internet may have greatly reduced the need for travel agents, but "buying a house is a way bigger deal than buying a vacation," said Emerson, the Lakewood broker. He pointed out that the paperwork alone involved in a sale is enough to make many buyers forsake the do-it-yourself approach.

To make themselves more indispensable, many agents are spending more time on personal service.

To sell a house listed at $1.7 million in Altadena recently, agents Jackie Darling and Chuck Livingstone created a website for the home, hired a stager to arrange the furniture and hosted dozens of agents for open houses with food and wine.

Agents also earn their commission by alerting clients to potential problems the average person might not anticipate, Darling said.

Four years ago, for instance, Darling said, she was selling a $1-million home whose neighbors had barking dogs. She said she made sure her client mentioned the animals in the sales contract.

Six months later, the new owners had moved out because of the noise from the dogs -- and implied they would file a lawsuit, Darling said. She reminded them about the disclosure, and the buyers backed off.

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