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Internet brokers shaking up the real-estate industry

Despite stiff resistance from some agents, sites like InfoSpace are reducing costs and putting money back into customers' pockets


When David and Annette Wolf decided that their family was outgrowing its Seattle area home, they also decided that they did not need much help finding a new one.

They combed Internet listings of homes for sale until they spotted a four-bedroom house on a cul-de-sac with a three-car garage on 1 hectare.

But the seller's agent refused to show it to them. Why would she turn away an eager buyer? Not because of the Wolfs' race, creed or color. Instead, David Wolf, a software engineering manager at the online directory InfoSpace, said he and his wife were shunned once the agent learned they used an online broker called Redfin.

David Wolf said they turned to Redfin because it gives two-thirds of its sales commission (which is usually 3 percent of the sale price) to its customers.

"I didn't want to pay 3 percent for the opening of a door," he said. But customers like Wolf -- affluent and comfortable with the Internet -- are a frightening prospect for real estate agents who, as a group, reap at least US$60 billion a year in commission income.

Redfin and other innovators, including ZipRealty and BuySideInc.com, are using technology to reduce costs and to save time for their brokers. Agents don't find and recommend homes -- customers do that on their own, using Internet listings -- and that enables agents to charge less for the services they do provide, chiefly handling the paperwork and negotiations.

The Internet has radically changed the way consumers buy books and airline tickets, trade stock and learn news. But the real estate industry has resisted change -- and protected its commission structure -- by controlling the information on its Multiple Listing Service database of properties for sale.

"You can find out more on the Internet about an eBay Beanie Baby than you can about a US$1 million house," said Glenn Kelman, chief executive of Redfin, a licensed broker in Washington state and California.

The MLS is the only place that contains nearly all the homes for sale in a community. Only brokers can post there, but agents can also display selected information about a listing on their own Web sites and on Realtor.com, a site that works with the National Association of Realtors.

Traditional agents still firmly control the MLS, which allows all participating brokers, including Redfin, to view almost every home for sale in a particular area, even those being offered through competitors' agencies. But the typical 6 percent commission, paid out of the seller's proceeds and split between the seller's and buyer's agents, is under attack because, as economists note, it does not serve consumers well.

Economists who have studied the current system say that it also does little for most agents -- except for a few stars, whose impressive earnings give hope to the large majority of less-successful agents and thus encourage them to protect the status quo. Rivals on the Internet say they do this by refusing to cooperate with buyers using Web-based brokers and by denying MLS information to some online firms.

They have not, as yet, fought back by reducing their commissions. And Paul Goodrich, the managing director of the Madrona Venture Group in Seattle, an investor in Redfin, says he thinks that they are unlikely ever to do so.

"It will be hard for the real estate industry to change the way it compensates its agents," he said. "If Coldwell Banker announced it was paying 1 percent commission to its agents, there would be a mass exodus."

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