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May 15, 2007

The Revolutionizing Power of the Internet: EMBRACE IT

60 Minutes had a story this Sunday which illustrated in a way that I had not seen so clearly in some time, of how the Internet is completely revolutionizing and demolishing business transactions as we know it.

Amazon.com did it to books. eBay did it to auctions. Dell did it to PC purchases. Travelocity (and others) did it to Travel. Netflix did it to movie watching (hello Blockbuster).

Now Redfin and other online realtors are doing it to the housing market.

Traditionally, real estate agents take a 6% commission on the sale of a house. Sometimes, as I understand it from the 60 Minutes piece splitting the commission costs between the buyer and seller, depending on the transaction.

Redfin and other online realtors are crushing this entire system by selling housing primarily online and taking only a 3% cut. 3% and 6% is a big difference on a $300,000 home.

The Redfin real estate agents handle all the paper work and through the phone make connections and help negotiate between buyer and seller, but that's about it.

Since they don't do as much of the traditional "leg work" - like showing a house and doing open houses - they can afford to sell more houses in less time than traditional agents.

In watching the 60 Minute piece, it looks to me like that traditional agents are simply scared and worried about their eroding business. They should be. However, instead of fighting the system and putting up artificial legal barriers, why not embrace the Internet? They might lose short term revenue, but in the long term (3 years, 5 years) they'll keep their customers and build long term relationships with a possibly younger audience who doe not mind looking at houses online and printing out their own flyers.

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