From...

Realtors learn to love the Net

by Michelle V. Rafter

(IDG) -- On a recent Saturday, Dennis and Marie Gorospe were house hunting in Cerritos, a modest bedroom community in the southeast corner of Los Angeles County. But instead of visiting open houses, they were browsing through online home listings on Realtor.com, the real-estate Web site.

One house in particular caught their eye. It was a $509,900 two-story, Mediterranean-style dwelling in one of the city's only gated communities. Smitten with the 360-degree photographs of the home's interior and exterior, the Gorospes called the agent listing the property to set up a walk through for the next day. The couple offered the full price on the spot, and the owner promptly accepted.

For the Gorospes, it was a happy ending to their search. For Johnny Carmona, the real-estate agent who sold the house, it's the latest sign of a trend that's transforming his profession.

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Two years ago, Carmona and Gary Thomas, his partner and the owner of Re/Max Select, the Cerritos franchise of Re/Max, a top real-estate company with affiliated broker-owners around the country, sold three houses to buyers whose first contact with them came from the Web. Last year it was six houses. Carmona believes the number will double again this year, to a dozen. That's almost a quarter of the homes he expects to sell in 1999. "And that's being passive, just having our listings out" on real-estate Web sites, Carmona says. "Now we're being more active about it."

Carmona, 45, a former firefighter, has been selling houses in this city of 53,000 for 19 years. Although he's an old-timer, he's among the first in his office of 40-plus agents to use the Internet to market his property listings.

The Internet has so far had a tepid effect on the $1 trillion residential real-estate industry – an economic driver so powerful it represents 15 percent of the country's gross domestic product. While electronic commerce has already transformed service industries like travel and financial brokerages, real estate is late to the game.

But that's about to change. For one thing, pure Web companies such as Realtor.com, Microsoft (MSFT) HomeAdvisor and HomeSeekers.com are working hard to put the bulk of the nation's 1.4 million home listings online. They're selling site-hosting services to real-estate agents, striking portal deals and spending big on advertising to drive traffic to their sites.

For another, there are some Web companies taking new approaches to the real-estate business. The past three months alone have seen the launch or relaunch of Homegain.com, set up to help sellers; Homebid.com, which runs online auctions of repossessed properties and foreclosures; and Owners.com, which posts for-sale-by-owner listings.

And in the past four years, the number of real-estate sites has mushroomed from around 3,000 to an estimated 250,000. Individual agents, national franchises and even for-sale-by-owner businesses are putting up Web pages.

Meanwhile, the rest of the home-buying process is moving online. Internet mortgage companies have the biggest head start. Web startups like E-Loan, iOwn and LendingTree are pouring into the business, along with big offline lenders. Online mortgages represented less than 1 percent of the $1.5 billion mortgage industry in 1998, but they will grow to 25 percent by 2003, according to one estimate. At least one startup, Vista Information Solutions in San Diego, is selling homeowner's insurance online.

"There are major players in title, escrow and mortgage industries moving online that will help streamline the process, which will lead to a better customer experience," says Hans Koch, founder of Owners.com, a Web site that excludes agents altogether. "We'll see the amount of [real-estate] documents moving online almost double each year for the next several years."

All of this will add to the downward pressure on commissions the industry is already experiencing. Smart agents will make it up in volume, says James Punishill of Cambridge, Mass.-based Forrester Research (FORR): "People who don't will fall off the map."

Three years ago, the real-estate industry was scared to death of the Internet. Individual agents and the brokers, franchises and associations with whom they worked were afraid that public access to multiple listing services – the electronic home-listing databases that are the industry's lifeblood – would cut them out of the home-buying process and destroy their commission-based incomes.

It didn't happen.

Real-estate agents such as Carmon a now approach the Net as a more cost-effective way to prospect for new clients, communicate with existing ones and cut back some of the drearier parts of the job, such as chauffeuring clients around to look at houses. If customers can preview dozens of houses on the Net before contacting an agent about the three or four they really like, Carmona says, it saves everyone time and keeps the agent in the sale.

But real-estate agents have been excruciatingly slow to adapt. They are, after all, salespeople, and as a rule salespeople are people people, not technology people, says Forrester's Punishill. Agents have shied away from anything that seemed to move the business away from the schmooze that was their stock-in-trade.

Even an early technology adopter like Re/Max's Carmona still regularly walks through the neighborhoods of Cerritos knocking on doors just to say hello and pass out scratch pads, betting eventually he'll encounter someone who's decided to sell. E-mail, taken for granted in so many business circles, is still used only by real estate's avant-garde.

The fragmented nature of the real-estate industry has also worked against quick Net adoption; too many layers need to be synched up for anything new to be accepted. Typically, a real-estate broker is a sole proprietor who may or may not be affiliated with a national franchise like Coldwell Banker, Century 21 or Prudential (PPLCY). Brokers belong to local or regional multiple-listing-service associations or boards, which control the listings databases in their area. Working in the broker's office are agents – independent contractors who earn commissions from the brokers on home sales. They've all gotten by for years as the gatekeepers of real-estate information. It goes against everyone's grain to put their most precious assets – the listings – online for the world to see.

Nor has there been much incentive to do so. After the residential resale market all but died in the late 1980s, a prolonged recovery and low interest rates have spelled good times for the business. Inventory, or the number of existing homes for sale, is off by up to 50 percent in some cities. It's a seller's market, which means agents don't have to work too hard to earn their keep. "If you're selling real estate and you're awake, you're doing well," says Brad Inman, an industry analyst and the founder of Homegain.com.

But all that could change if interest rates suddenly spike, or if one pure-play Net company suddenly makes a killing on Wall Street.

At re/max select, agents pile into their cars for the weekly caravan. Riding in threes and fours, they'll spend the next 90 minutes driving through the city, stopping a half-dozen times to walk through homes newly listed for sale.

Carmona slides into the backseat of a white Toyota Avalon driven by fellow Re/Max Select agent Joyce Rattan, who's been in the business for 20 years. Tagging along is Maria Garcia, who began selling houses seven years ago after a career as a bank loan officer.

Only a handful of Re/Max Select agents are on today's caravan. The rest are attending an Internet class Realtor.com is holding in Bellflower, one town over. For the past few months, Realtor.com and its competitors have barraged agents all over Southern California with postcards promoting their seminars. Although they cover basics such as how to use e-mail and browse the Web, the real point is to convince agents to build a page on the vendor's Web site, a service that costs from $300 to $700, plus annual maintenance fees.

Re/Max has its own Web site. So do Re/Max Select and Re/Max of California, an umbrella group for Re/Max brokers in the state. Still, Carmona, Rattan and Garcia are building their own. That way, they say, they can have more control over how listings appear, and can possibly get prospective buyers to call them directly. All three are taking the plunge because they believe they can't afford not to.

"The public thinks if you're taking the step to create a site, you're that much more committed," Rattan says.

Carmona regularly e-mails a promotional newsletter to a list of 150 former and current customers. He also pays technology vendor Bamboo.com, formerly Jutvision, $99 per home to provide those 360-degree photographic virtual tours. So far he's the only one in his office using the service.

Until four years ago, Carmona had never touched a computer. He bought a laptop so he could switch to electronic contracts instead of the paper kind. Now, once a sale is final, he fills in the details on an electronic form and prints it out for home buyers and sellers to sign. He also uses his laptop to make PowerPoint presentations to people thinking of selling their homes so they'll choose him as their listing agent. Once he gets a new listing, he inputs the information into a multiple-listing-service form on the laptop and electronically transmits the information to the local MLS association, which adds it to a regional home listing database.

In all, computer equipment, software and Internet services account for $1,000 of Carmona's $10,000 annual marketing budget. Using the Net is inexpensive, he says, but most agents still balk. "They don't want to spend the money."

Other brokers are spending big to wire their entire operations. Chuck Lamb, a former president of the California Association of Realtors, sold real estate in the San Fernando Valley for 28 years. Four years ago he moved to Vacaville and opened a Prudential California Realty franchise. His 25 agents have Net access, e-mail addresses and Web pages – at a cost to Lamb of $1,000 for the Web site and $450 in monthly maintenance fees and ISP charges. If a potential employee won't use e-mail or dislikes the extra cost, "They won't dare say so in front of me," Lamb says. "I'd have to consider that they're going in the wrong direction if they take that attitude."

At Coldwell Banker Stevens, a top franchise in metropolitan Washington, D.C., owner Tom Stevens has spent $2 million in the past five years updating his company's computer equipment. He's spending another $750,000 this year on a wide-area network to connect all 1,200 Coldwell Banker Stevens agents to e-mail and the Web. "Either we start looking at what consumers are demanding, and supply it, or we'll be left by the wayside," Stevens says.

Part of agents' reluctance is their ignorance of technology. Prudential Real Estate Affiliates, which is based in Irvine, Calif., began an "eCertified" program earlier this year to teach agents e-mail basics. So far, 1,300 of its 39,000 sales associates have taken the day-long course, and Prudential expects to train another 2,700 by the end of the year. "This is a clear message to the consumer that we're as well-versed on the information as they are," says Jeff Travelstead, PREA's senior VP of operations and systems.

Independent trainers and consultants are doing a land-office business. The Internet Crusaders, a band of four real-estate educators based in San Diego, says it has trained 80,000 agents in the past two years – at $3,000 to $5,000 for a day-long workshop.

The National Association of Realtors had the right idea early, but it stumbled. In 1994, the association started an online real-estate listing service called the Realtors Information Network, or RIN. But it was a proprietary, private network – the NAR charged $3 per home listing – and the commercial rise of the Web made RIN obsolete even before it was finished. Meanwhile, fledgling real-estate Web sites quickly stopped charging and starting paying to put home listings online, even sharing revenue with multiple listing services. Financial mismanagement uncovered in an independent audit added to RIN's troubles. The NAR, which invested a reported $15 million in the project, stopped development and started looking for a buyer.

Enter HomeStore.com. Richard Janssen, 50, a San Diego real-estate technology entrepreneur, and Stuart Wolff, 36, an ex-TCI Interactive exec and former IBM engineer, started the company as RealSelect in 1996. They bought RIN's home listing database as the cornerstone of Realtor.com, which became the official NAR Web site, with complete access to the home-listing databases of NAR affiliates. Realtor.com has 1.2 million home listings, nearly twice as many as any competitor. According to documents filed with the SEC before its May IPO, the NAR retains a 9.9 percent interest in HomeStore; venture firms Kleiner Perkins Caufield & Byers and Whitney Equity Partners hold 18.4 percent and 11.6 percent, respectively. Other investors include mortgage lenders GE Capital, with 8.3 percent; Fannie Mae, with 4.5 percent; and cofounders Wolff and Janssen, with 6.6 percent and 3.8 percent, respectively. America Online is also an investor.

"Two years ago I predicted there would be one national Web site and it would be us," says Wolff. "The facts speak for themselves. We are the leading destination in real estate. Period." HomeStore has spent an estimated $40 million of the venture funds it's raised on portal deals with America Online, Infoseek and Excite. In late May, HomeStore acquired apartment-listing site SpringStreet – formerly AllApartments.com – for $47.4 million in stock.

HomeStore has expanded its Net presence with other acquisitions, including HomeBuilder.com, a list- ing service for new homes, as well as CommercialSource.com, a commercial real-estate service also affiliated with the NAR. And in March, HomeStore replaced cofounder Janssen as president with Michael Buckman, 51, formerly of Worldspan, the airline-owned technology provider that runs reservation systems for Delta, Northwestern and TWA.

In its most daring move to attract the loyalty of the nation's 720,000 real-estate agents, before it filed for its $100 million IPO, HomeStore offered stock warrants to multiple listing services that agreed to license their home-listing databases exclusively to Realtor.com.

Microsoft was expected to pose the biggest threat to Realtor.com's dominance of the online real-estate space. But so far, Microsoft HomeAdvisor, launched in July 1998, has had little impact. Traffic to the site measured 471,000 individual visitors in March, one-third the number that logged onto Realtor.com in the same period, according to Media Metrix. Of the nation's top six national real-estate franchises, five have officially endorsed Realtor.com. Only one – Better Homes and Garden Real Estate Service – has partnered with HomeAdvisor.

To boost its image and increase traffic, HomeAdvisor in January contracted to maintain a portion of the home listings database of HomeSeekers, the Minden, Nev.-based company that is another market leader. HomeAdvisor group product manager Ian Morris denies the move was a sign of weakness. "We can't keep up with demand for brokers to put up listings," he says. In late May, HomeAdvisor and HomeSeekers, which typically charge hundreds of dollars for Web sites, teamed up to offer agents free – albeit bare-bones – Web pages on their respective sites. In addition, HomeAdvisor now offers a free PC to anyone who closes a home loan on the site. Morris says HomeAdvisor is well ahead of financial goals, "but no one expects to make a profit in year one."

Thanks to tremendous marketing and technology costs, few home sites are making money. HomeSeekers, for example, lost $2.3 million on revenue of $2.6 million in the nine months that ended March 31. Company officials estimate they'll break even later this year by selling agents custom dial-up access and Web-hosting services. HomeSeekers signed up 1,000 real-estate agents for its free Web-page listings the first week they were offered, and will use those leads to market other services, according to John Giaimo, the president of HomeSeekers. The company's also running radio and TV ads. "It's been a struggle to get recognized," he says. "We've been the gum on Realtor.com's shoe. But real-estate agents are telling us this is a great service."

HomeSeekers, one of the only publicly traded companies in the space, raised $12 million in its IPO, and expects to move from the over-the-counter bulletin-board system to Nasdaq's small-cap listing in mid-June. By the end of the year, Nasdaq may also see stock offerings from Bamboo.com, the 360-degree photography technology vendors; IPIX, a competitor; and Homebid.com, the residential real-estate auction site. So many real-estate companies are lining up to go public that one analyst is calling 1999 "the year of the real-estate IPO."

Despite the momentum, most real-estate agents are wary of Net companies, worried that they could get cut out of the deal. National real-estate franchises haven't been much more eager. But look at the havoc E-Trade and Datek have wreaked on the old brokerage firms. Real-estate agents will never go away, but their roles could change considerably. It's easy to imagine dot-com real-estate companies getting licensed in all 50 states in order to compete against their one-time partners – although none of the sites profess to be interested in taking this route.

The biggest, most complicated transaction most people ever make is moving inexorably online. "The industry is going to change more in the next two to three years," says real-estate technology consultant Gregg Larsen, "than it has in the past 20."

Hot properties

Home-listing sites are fighting to become the first place consumers look when they're house hunting. So far, Realtor.com's the front-runner, thanks to its affiliation with the National Association of Realtors. Rivals are pumping up their numbers by signing deals with national real-estate franchises and multiple-listing-service boards, which control home- listing databases on a local level. Here are some top sites:

COMPANY	HOMES LISTED*	WEB SITE TRAFFIC**	CLAIM TO FAME
CyberHomes Minneapolis	360,000	600,000	Run by Moore, a leading MLS technology vendor.
Homes.com Menlo Park, Calif.	300,000	238,000	Run by PLC Media, parent company of Homes and Land magazine, the free home-listing magazine distributed at grocery stores.
HomeSeekers.com Minden, Nev.; Brea, Calif.	700,000	600,000	Provides some multiple-listing services for HomeAdvisor. So far, it's the only publicly traded online real-estate play.
Microsoft HomeAdvisor Redmond, Wash.	500,000	471,000	The company gives away free PCs to people who sign up for home loans through the site.
Realtor.com Thousand Oaks, Calif.	1,200,000	1,713,000	Realtor.com is the official Web site of the National Association of Realtors. The Kleiner Perkins-backed venture filed for a $100 million IPO on May 28.