Rent Real EstateMoney At The Center Of VOW Debate
Once again real estate brokers are being asked how much they should give up for access to the Internet traffic and leads created from their data
and listings. The real question, of course, is why they should give up anything
Money -- who gets it and who doesn"t -- is at the center of the huge dispute concerning Virtual Office Web sites, or VOWs. With VOWs as currently proposed, all listings from a local MLS must be available for display -- MLS member brokers would not be able to opt out or fully control the use of their listings. Consumers who wish to see VOW listings would be forced to register with VOW owners. With a registration in hand, a VOW owner -- perhaps an entity that has never seen the property, never met the prospective buyer and never visited the community where the property is located -- may well be entitled to a share of the realty commission.
As the VOW proposals now stand, the site owner can be nothing more than an online site seeking a piece of the brokerage commission in the form of an advertising charge or referral fee in exchange for traffic access -- traffic created from the use of broker listings and data.
To understand what"s going, imagine that a farmer sets up a roadside stand to sell his beans and corn. A company -- we"ll call it Succotash Trucking and Squatting -- then parks a huge truck on a public right-of-way in front of the farmer"s stand, advertises beans and corn for sale, and then offers to sell the farmer"s produce in exchange for a piece of the sale price.
In this process you"ll notice that:
*The truck owner has no beans or corn to sell.
*The truck owner doesn"t own any local farm land and pays no local property taxes.
*The "services" provided by the truck owner do not result in bigger beans, better corn, lower costs for farmers or price reductions for consumers.
*No additional beans or corn are produced and the overall consumption of beans and corn does not change.
*Fewer buyers will go directly to the farmer"s stand because it"s hidden behind the truck.
*The farmer has a new cost -- payments to the truck owner.
The business strategy used by Succotash Trucking is not especially different in principle from many Internet proposals which have emerged during the past decade. The core idea is to move the point-of-sales -- but not production, inventory or labor -- from a physical store or office setting to an online site using someone else"s inventory as bait. To get that bait, at least in real estate terms, you have to capture broker listings and data.
Will a VOW sell homes faster? There is no possibility of making such a claim. Real estate is a "nonhomogeneic" commodity -- that means each property is different, all buyers and sellers are unique, and each and every transaction is distinctive. You can"t measure "faster" when no other transaction is identical.
Not only is there no evidence that a VOW will result in faster sales, there is also no evidence that homes will command more dollars should VOWs emerge. Why? Same reason. All transactions are different, which explains why one townhouse sells in a day when an identical model in the same condition and with the same price languishes on the marketplace for six months.
Suppose VOWs did increase home prices. If so, how would buyers benefit from steeper acquisition costs?
What about broker economics?
With a VOW no additional houses will come to market, no additional homes will be built and no additional buyers will be created. What will change is that many brokers will have increased marketing costs.
The way VOW proposals are currently structured it would good make sense for a local newspaper or magazine to obtain a real estate license, join a local MLS, and then charge referral fees instead of classified ad rates. That"s essentially what online aggregators are doing with listings generated by local brokers, and if it can be done online then it can surely be done offline as well.
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