Innovations to Watch - 2006
Zillow.com – changing real estate
brokerage?
"How it's all going to shake out, I
have no idea. But I'm 100% sure that things are going to change."
Richard Barton, Chairman and CEO of Zillow.com, in The Wall Street
Journal
Full service
real estate brokers charge fees of between five and six percent to sell
a house. Half of these fees go to the listing agent, and half to the
agent representing the buyer. These fees have been remarkably stable
for many years.
There are 1.2
million real estate agents in the US. Most of them belong to the
National Association of Realtors, which has recently been sued by the US
Department of Justice for anti-competitive practices. According to the
DOJ, the National Association of Realtors hoards access to home sales
databases, and harasses competitors who try to offer discounted
commissions.
Zillow’s estimated house values off Geary Blvd in San Francisco
Zillow.com launched its new website on 8 Feb 06. Combining satellite
images with data on past home sales and home values, the site enables
anyone to get an estimated selling price for most residential real
estate properties in the United States.
For
example, if you’re interested in buying in San Francisco, the figure
above provides estimates of house prices around Geary Boulevard and
Parker Avenue.
In
addition to these estimated values, Zillow also provides listings of
“comparables,” houses that have recently sold in the neighborhood, with
their sales price.
While
this information has always been publically available, it was difficult
to access. Most sellers and buyers looked to real estate agents to
provide this information for them. Now they can get it themselves.
Richard Barton,
the CEO of Zillow.com, was the founder of Expedia.com in the mid-1990s.
Expedia was one of the first travel web sites, allowing customers to buy
airline tickets and hotel rooms directly from the providers. In doing
so, Expedia played a major role in reducing demand for travel agents.
From 1999 to 2004, the total number of travel agents in the US declined
by about 20 percent, according the U.S. Bureau of Labor Statistics.
Now, venture
capitalists have given Mr Barton $15 million to see what he can do to
real estate brokerage. He emphasizes that Zillow is intended to provide
information to buyers and sellers, and not replace brokers. The company
will make money by selling advertising on its site, and will not serve
as a brokerage firm itself.
But this kind of
information has been difficult to find. Zillow could serve as an
information base from which other kinds of services can grow to replace
many of the services provided by agents.
Already, there
are companies who will provide real estate services on a fee-for-service
basis, rather than taking a commission. To list a home, for example,
costs $750; showing runs $50 an hour. These fees will be much less than
the percentage commissions charged by conventional real-estate agents.
The six percent
commission has generated a $60 billion business for real estate agents.
Thanks to startups like Zillow.com, we can expect to see brokerage
commissions dropping over the next several years as new approaches
slowly begin to replace traditional real estate brokerage.
Exante Healthcare Banking
Exante’s HSA Card
In 2003, the US
Congress passed legislation which enabled the creation of Health Savings
Accounts (HSAs). These are tax-deferred accounts, like IRAs, which are
dedicated to spending on healthcare. Combined with a high deductible
insurance policy, these accounts are intended to reduce overall expenses
for healthcare by having patients pay for much of the non-catastrophic
medical care they receive. If consumers are paying for their own
healthcare, the thinking goes, they’ll spend healthcare dollars more
wisely.
Banks and
brokerages think consumers will see HSAs as another tax-deferred savings
account, accumulating assets in them. According to a study by
consultants DiamondCluster International, there may be as much as $75
billion in new money available to financial services companies by
2010. As a result, HSAs are generating lots of activity among
financial services companies.
Exante (which is
latin for “before the fact”) sees things differently.
"This has nothing to do with an assets-under-management play… There will
be a huge falloff in people who are trying to play that role. Eighty
percent of the money [will be] assets that go right in and go right
out."
John M Prince, CEO of Exante
Financial Services, in The New York Times 27 Jan 06
Exante
represents the melding of banking and health insurance. Established as
a Utah-based bank in 2002 by United Healthcare, a large health insurance
organization, Exante accountholders get a Mastercard debit card tied to
their HSA account. They use this to pay for medical related expenses.
United Healthcare, Exante’s parent company, provides them with the
required high deductible insurance policy.
Exante
represents a new structure that combines individual savings with group
insurance. In December 2005, the Blue Cross Blue Shield Association
said it was planning to charter a similar institution, Blue Healthcare
Bank, an online bank.
By 2010,
DiamondCluster projects that there will be 15 million HSAs in the US,
covering about 10 percent of all those insured. Currently, there are
less than three million. If these projections are accurate, we can
expect that about three million people will add a new debit card to
their wallets in 2006, one that is funded by contributions they make to
their new HSA account.
More Information:
-
Stephen
Dubner and Steven Levitt wrote about real estate agents in The
New York Times on March 5, 2006. Here’s a
link.
-
Zillow.com’s
debut was anticipated in The Wall Street Journal on 13 Jan
06. Here’s a
link.
-
To go to
Zillow.com itself, click
here.
-
Exante
financial services was profiled in a New York Times article
on 27 Jan 06. You can read it
here.
-
The
DiamondCluster report on Health Savings Accounts is available
here.
