Back in 1597, Sir Francis Bacon said “knowledge is power.”
To many, this simple quotation is more commonly thought of as a contemporary phrase and perhaps better suited for today’s technologically driven information age. But in the late 16th century, when witches were routinely burned at the stake, Bacon was well ahead of his time as an advocate of the scientific method and proponent of verifiable data in the pursuit of expanding man’s knowledge.
More than 400 years later, the control of both knowledge and information still reigns supreme in our quest for power and wealth.
Nearly every profession protects the value of its services by limiting and tightly controlling the dissemination of proprietary knowledge associated with that profession. Information can be costly to collect, and putting it in a useful form further enhances its value. For real estate, the primary source of such information has traditionally been the multiple list system.
Funded by agents, there are numerous multiple list systems across the country. The largest such company is right here in the mid-Atlantic region.
The service used by local real estate agents is called Metropolitan Regional Information Services Inc. (MRIS). MRIS covers Washington, D.C., most of Maryland and suburban Virginia, as well as parts of West Virginia and Pennsylvania. MRIS has approximately 64,000 active listings, and nearly 45,000 real estate professionals subscribe to its service.
Nearly $100 million worth of real estate is sold through our multiple list system every day. However, largest in the country is an honor MRIS will soon concede to a company in California. The California Regional Multiple List Service (CRMLS) is merging with SoCalMLS. Together, they will have nearly 68,000 subscribers.
Not all that long ago, the process agents used in locating listings was fairly primitive. In the late 1960s and early 1970s, a real estate office would keep track of listings using 3×5 index cards. The information about a house for sale was filed away in a box, much like the system used to catalogue books in a library.
As you might imagine, the records were notoriously inaccurate, and accessing the information was difficult at best. Then, from 1974 all the way to 1994, most agents relied on books published monthly by local real estate associations. Like the cards, the books were often out-of-date, and each association had a different book. When showing homes across various counties, it would be necessary to subscribe to books from several associations.
Finally in 1994, the modern computer age rescued agents from these cumbersome and unreliable systems.
Today, listing information, once proprietary to agents and brokers, is published on the Internet, making it instantaneously available to everyone. This has resulted in the birth of a new player in the real estate industry. In the last several years, numerous Internet companies have been created that specialize in collecting listing information from multiple brokers. They then repackage this information for public consumption.
Real estate professionals refer to these companies as “aggregators.” Consumers looking to buy or sell a house know them as websites such as Zillow, Trulia or Realtor.com.
Until recently, the relationship between brokers and aggregators has been mutually beneficial. The brokers provided the listing data to the aggregators for free, who in turn help sell property by distributing this information to a broad audience. Brokers made money though commissions, and the aggregators made money by selling advertising space on their web pages.
Recently though, this marriage has seen some troubled times. Like many in the real estate industry, aggregators have been feeling the pinch with respect to revenues. As a result, they have been looking for new ways to improve the bottom line.
One such effort has been to “sell” agents web page advertising space adjacent to properties listed for sale on that page. This has produced a couple of problems. First, brokers and agents are predictably annoyed by the idea that Internet aggregators want to sell back to them ownership of the very information they had already provided to the aggregator for free. Second, and more importantly, selling agents advertising space next to a listing has created some consumer confusion about who has really listed that property.
If you search the address of a house for sale, you’ll see results from websites like Zillow, Trulia, Redfin, Sawbuck and many other Internet aggregators. Next to a picture of the house, and the associated listing details, you’ll most likely see a picture of a real estate agent and their contact information. In most cases, however, that will not be the agent or broker who actually listed the property. The agent who usually appears there has paid the aggregator for that advertising space.
From a consumer perspective, this can generate some issues for both buyers and sellers. If a prospect calls the agent shown in the advertisement, they might not get the actual listing agent and as a result find themselves talking to someone who isn’t familiar with the property or even the area where the house is located.
Finally, many real estate aggregators have not been reliable about maintaining the quality and integrity of their information. According to Trulia, 10 percent of the listings on their site contain errors. More than 50 percent of those errors had the wrong price; 41 percent showed the wrong status (saying a property was available, when it was actually under contract or sold), and 8 percent had mistakes in both the price and status.
The information provided to the aggregators by agents and brokers is accurate, but it can become unreliable if website aggregators fail to frequently update their database.
Internet aggregators have also moved into the area of estimating property values. Zillow is big on this, with what they call a “Zestimate.” Unfortunately, these Internet “guesstimates” are often not much more than crude averages of historical selling prices.
Determining the value of an individual property is a process that involves a huge number of variables and requires the experience of someone (an agent or appraiser) who is intimately familiar with local market conditions. We have seen Internet value estimates that are off by hundreds of thousands of dollars. It’s risky business at best using them to determine what a house is worth.
So, the evolution of information in real estate and how it’s presented to the public is still in a state of flux. Because of these issues with Internet aggregators, one large real estate broker in the Midwest (Edina Realty) has decided to pull its listings from aggregators like Trulia. Whether other brokers will follow suit, or the aggregators will make changes to their business practices is still an open question.
Regardless, consumers of real estate services should always be aware of how the system works and how it could affect their individual efforts to buy or sell a house.
As with many other businesses, the advent of the Internet is still a relatively new part of the marketing mix. The challenges we face in making this new and vast source of computerized information timely, transparent and accurate exists today, just as it did when listings were filed on index cards. There always has been, and always will be, room for improvement.
Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is McWilliams@BobDonna.com.