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Is Web Technology Squashing the Little Guy in Real Estate?

About once a week, someone asks Redfin who built our real estate search site (sometimes they don’t ask, they just take). Since we built our site on our own, we can’t recommend a development partner, but we can offer advice to other brokers building MLS-powered sites.

And our first suggestion would be to bring your wallet. If you include all the employee salaries, benefits, hardware, online services, data costs and hosting costs, Redfin will probably spend $4+ million on research and development in 2009.

Is Technology Tilting the Playing Field Toward Large Brokers?

Is Technology Tilting the Playing Field Toward Large Brokers?

That may sound like an imposing number but we have costs you can avoid. We spend at least $1 million on commerce tools for tracking offers and listings, so we can give customers the same 24-hour web support you expect from a bank, limiting the administrative burdens on our agents. A traditional brokerage doesn’t have to invest in this area.

We probably spend another $1 million making mistakes you could easily duck by following us at a safe distance of, say, six months. We try to avoid mistakes, but a mistake is often just a good decision outpaced by circumstances.

For example, when we had no money — scratch that, (thanks David Selinger) when no mapping technology existed that supported user-controlled panning and satellite imagery — it made sense to build our own map. Later, Virtual Earth was the best choice because Google was slow to draw hundreds of property outlines on its map. Now the best choice for us is Google Maps because we figured out how to outline all the properties at once. We just switched to GMaps today, and now it’s on the front page of TechMeme.

I think we’re the only folks in real estate who have used Virtual Earth, Google Maps and a proprietary map, so if you have questions on the relative merits of each service, please just drop us a line.

That leaves the cost at around a few million dollars per year to build a real estate search site with national scale, which is still too expensive. While hardware costs decrease every year, and other websites have undoubtedly achieved more with less — often by out-sourcing, sometimes no doubt by just being smarter and faster — it is still true that small brokers are struggling to pay for competitive search sites.

This is a change. Marketing, which used to be the large brokers’s primary advantage, is actually getting cheaper — if Bloodhound has proved anything, it’s that the web has made marketing a question of what you have to say not how much you have to spend.

But the cost of running a real estate search site is rising fast. Large brokers throw money (if not always expertise) at the problem, while small brokers struggle to compete. The small brokers ask MLSs to provide a common set of services, like listing alerts, but the large brokers sometimes block these efforts as being beyond the MLSs’ charter.

And expectations are rising. Consumers now want tax records, bank records, property outlines, school data and neighborhood outlines, all of which are expensive.

The sites a Realtor could work with aren’t always attractive. Realtor.com, the site funded by Realtor dues, is losing market-share. Sites like HouseValues, Trulia and Zillow are gunning to replace Realtor.com, but not all agents who want to be featured on those sites can afford the up-front costs .

It would be a shame if technology — which is supposed to lower the barriers to entry — actually made real estate less of a mom-and-pop industry. I know Redfin is part of that trend, but it wasn’t what we had in mind when we started. Our focus was on competing with Century 21 and RE/MAX, and benefiting the consumer — not hurting the little guy.

What do you think? Is technology creating new economies of scale in real estate? Are small brokerages able to compete just using the public sites provided by the MLS? Will large brokerages be able to use better data access to build the market-leading real estate search sites?

And is it the role of the MLS or of the National Association of Realtors to create a level technology playing field? Will the small brokers get priced out of the technology wars? I don’t pretend to know, but it would be great to hear your thoughts.

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