Will Digital Disruption Upend the Traditional Real Estate Model in Santa Clarita?
Digital disruption is fundamentally rewriting the business landscape, creating new business models, and changing the way individuals run their business and personal lives. Consider the travel industry. There was a travel agency in every town 25 years ago. Now, most people book their travel on a tablet. You can do stock investment from a phone app. You can run entire e-commerce businesses from a coffee shop with an off-the-shelf laptop. All it takes is some remote workers, drop shipping, and a decent WordPress theme. Yet, for a long time, it looked like real estate would defy the mounting pressure of digital disruption that nearly obliterated the music industry. It turns out, however, that Santa Clarita Real estate may just be a bit late to the party.
To understand how digital disruption threatens the traditional real estate industry, you must understand what Santa Clarita real estate agents typically do for a client. The first thing you need to know is that there are typically two real estate agents in every transaction. There is the buyer’s agent and the seller’s agent. Let’s look at the buyer’s agent first, since that’s the more recognizable side of the equation for most consumers.
The buyer’s agent
The buyer’s agent is, in the classic model, the person who you talk to about buying a new property. You give them a list of features you want, like square footage, number of bathrooms, acreage of attached land, and condition. For the avid DIYer, a fixer-upper might be just the ticket. For the busy professional, move-in ready is a must have.
If you’re very choosy, you might also provide acceptable architectural styles and age ranges of the home. The agent then compiles a list of Santa Clarita properties, arranges showings, and even goes on walkthroughs with you at the properties. Agents can also provide you with information about what typical property prices are in a given neighborhood.
Once you settle on a property and a general price you’ll willing to pay, the agent goes into negotiation mode. They might compile a list of complaints about the property and present those to the seller’s agent. The object of this exercise is to drive down the asking price to what you want to pay or something close to it.
Once the price is negotiated to a mutually acceptable price, they call in the lawyers. Not really, though it might feel that way. What happens next is securing financing. In theory, your Santa Clarita agent helps you compare mortgage options among several available mortgage brokers.
This is all to help you get a good interest rate and keep the fees down. As often as not, though, realtors default to 2-3 brokers they use all the time. It saves them time. Once the financing is in place and the contracts are signed, you just wait for closing.
The seller’s agent
On the other side of the equation is the seller’s agent. The typical Santa Clarita seller’s agent helps you put your property on the market. For example, they get the property listed in the MLS or Multiple Listing Service. That’s the database of properties that buyer’s agents peruse when looking for properties that meet their client’s needs and wants.
The seller’s agent may also help you develop a marketing plan, such as listing the property in real estate circulars. Some will also help you develop sales language to paint your property in the best possible light. You can also expect the seller’s agent to make some recommendations about home improvements that will boost the sale price.
Once a buyer’s agent contacts them, their job is primarily to negotiate the price and make sure your side of the paperwork all gets completed correctly.
Once the sale is finalized, both the buyer and seller agent collect 3% of the sale price for their efforts. So, 6% of the price goes straight to the agents for their work. Now, having a real estate agent involved is probably a good idea for first time Santa Clarita home buyers or sellers. If nothing else, they’ll ensure all the steps in the process happen as they should.
If you were paying attention to all of the things real estate agents do above, you probably started wondering what work they actually do.
After all, most buyers research the properties they want online before they ever talk to an agent. For that matter, many buyers go out and secure financing through their own bank or another mortgage broker they find. You can find out detailed information online about what properties sell for in a given neighborhood, right down to the house next door. For that matter, there’s nothing magically about negotiating a price.
On the seller’s side, the main function of the seller’s agent is getting the property listed in the MLS. Except, you can list your own Santa Clarita property online on multiple sites without an agent. For someone with a little experience in buying or selling properties, it becomes mostly a question of whether you think the agent’s 3% is more or less expensive than the time you’d invest doing it yourself.
In fact, it’s these exact objectons that are driving the recent digital disruption in real estate by several web-based companies that we’ll look at next.
REX Real Estate in Santa Clarita
The REX Real estate exchange isn’t some here today gone tomorrow organization. Actually, Rex employs real life individuals, agents, to take care of the transactions and in person through the use of their online platform.
There are a few different positives within their business model. For example, Rex real estate exchange here in Santa Clarita feels that the industry standard commission rate of 4-6% is simply over the top. Rather, the Rex model operates more like a caretaker. It’s a service which charges a seller 2% commission to take care of all things related to your sale.
In other words, Rex will take images of your property, market the home and once there is a buyer for your home Rex will help both parties circumvent the mounds of paperwork. Not only will they perform these services they also connect individuals with lender, title companies or escrow companies.
Furthermore, the Rex group may help with suggestions on establishing a selling price from a program they use which uses economic statistics but you don’t have to use their suggestions.
In the same way they are considered to be an outsider in the way of real estate traditionalism, they also evade using the traditional Multiple listings service. For the most part, they rely heavily on the other widely used real estate related websites to sell your home. Especially since most of us use the internet to search for our own homes, right?
Seriously… when’s the last time anyone went to a realtor and said “find us a home?”
As a seller of a home, you can keep more of your cash. If you’re a buyer, and don’t use a buyers agent, you can avoid the commission fee altogether.
Zillow is one of the biggest real estate site out there in terms of raw traffic. The site brings in around 36 million visits per month. That’s a lot of potential buyers. What makes Zillow unique is that it lets you list your property for sale yourself. It’s the classic For Sale By Owner approach. Zillow doesn’t charge you anything to list the property and it also appears on Trulia, the next biggest real estate website.
There are several benefits for Santa Clarita homeowners in this situation. You escape agent fees entirely. You’ve got a lot more invested in the sale of the house than an agent who’s representing a dozen or several dozen homes. Sure, they want it to sell, but it’s not getting 100% of their attention. You’ll put a lot more effort into marketing the home and presenting it in the best light.
You get to decide when you want to do showings, which means you can limit them to the weekend or specific evenings. That frees you from the need for constant upkeep inside the house. You can also talk about living in that location with more expertise than an agent. Just make sure you stay on the right side of the Fair Housing Act in terms of what you say.
A slightly different model is the one used by FlatFee. It’s a literal flat fee or rather three flat fees for ascending levels of service. Their basic service goes for $995, regardless of the value of your home. List your Santa Clarita home for $200,000 or $2,000,000, the basis service is still $995. That basic service gets you several services, including MLS advertising, exterior photography, and they handle the paperwork.
The more expensive tiers go for $3,495 and $4,995 respectively. Those tiers of service come with lots of bells and whistles including:
- Marketing on Zillow and other major real estate sites
- Direct marketing
- Social media promotion
- Virtual tour of your home
- Custom website (most expensive tier)
- Expanded photography options (most expensive tier)
The kicker is that even the most expensive tier of service will still be cheaper than an agent’s commission on any home worth more than $100,000.
Purplebricks here in Santa Clarita
Originating in the UK, Purplebricks expanded into the US in 2018 with a rock-bottom flat-fee listing price of $3,200, which it quickly bumped up to $3,600. The company has pivoted its model yet again. It still offers flat-fee listings, but the fee varies depending on location. The upshot is that you pay nothing until the house sells and the company provides a variety of services that support the sale of your home.
A few of those services include listing in the MLS for your area, marketing and advertising, and listing on major real estate websites. The Purplebricks website allows sellers to control when showings happen. The site also strongly encourages buyer pre-qualification to avoid a sale falling through because of a lack of financing.
The downside is that sellers are still expected to cover the standard buyer’s agent commission of 2-3%. While this model will probably still save you money, other options will likely save you more.
You can also find other, similar services such as FlatFeeAccess or 1% Broker Realtors who also offer discounted listing fees or work for a lower commission rate.
What Does this Mean for the Santa Clarita Real Estate Industry?
It doesn’t mean anything good for traditional real estate agents. With buyers and sellers already doing so much of their own legwork, it’s a very short step to skipping traditional agent representation.
Business models like the ones favored by REX, FlatFee, and Purplebricks all leverage a robust online infrastructure to reduce costs. Bargain hunters and experienced Santa Clarita real estate buyers and sellers will begin flocking to these kinds of services. Right now, the main limitation facing these businesses is coverage. Most of them only offer services in limited areas, typically around major urban areas like NYC and Los Angeles. That won’t last. If the businesses prove profitable, the expansion will happen faster than anyone expects.
That isn’t to say that traditional real estate agents don’t still have a role to play. They are essential guides for first-time buyers and sellers. They effectively teach consumers the steps in the process. If traditional real estate agents want to hang on to those customers for future transactions, though, things must change. The 3% commission on every sale will go the way of the dodo. With less expensive options out there, consumers won’t tolerate what they’ll view as gouging for a minimum of actual work by the agents.
In the long-term, though, real estate agents may very well have to redefine their profession. Rather than just connecting Santa Clarita buyers and sellers, they may need to transform into something more like a marketing firm that offers a deep well of valuable extra services. Without such a transformation, real estate agents may very well go the way of travel agents.
MAZZA Inspection Group of Santa Clarita
The Mazza inspection group is one of the most thorough home inspection companies in all of Santa Clarita. Some of our services include roof inspections, swimming pool inspections, home inspections and swimming pool leak detection. You can also see more of our blog posts and even ask questions.
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