Enlightened Capitalism

Essays about how to harness people's natural desire to create wealth and improve their quality of life to solve global problems such as war and poverty.

Friday, April 22, 2005

The Future of Real Estate

By 2010, real estate is going to migrate entirely to the internet. A site like ebay for real estate is going to show buyers everything they need to know and walk them through the transactions, virtually eliminating the need for real estate agents as we know them.

The following steps will enable this to happen.

1) We will have a standard protocol for describing properties. Everything about a home, commercial space, or vacant lot that is relevant to its value will be catalogued and displayed in tables, maps, drawings, and photos, allowing for accurate comparisons across properties.

2) Inspections that are now optional (e.g. professional home inspection, soil report, pest control, roof inspection, zoning & permits, police activity, air quality, comparable sales, tenant info, etc.) will become a mandatory part of the process. The seller will simply pay one time for the service that compiles and posts all these reports. Currently this costs between $1000 and $5000 per transaction, however, better tracking and economies of scale will bring that price down to less than $500 per transaction.

3) The process of obtaining real estate financing will be further automated. This has already been done with Home Equity Lines of Credit, where you can walk into a bank and get a loan on your primary residence as quickly, cheaply, and easily as getting a credit card. The credit reporting, FICO score, and loan application process will be improved to give a more accurate picture of borrower risk. Sites like eloan will preapprove and process the entire loan before the buyer even selects the property. The typical escrow period will be 3-5 business days.

4) Rent back provisions will be standardised. Because escrow will be so fast, whereas arranging a move sometimes takes longer, a standard contract for renting back the property from the new owner will be added to every transaction.

5) Contract repair work will be standardised. There will still be contractors and unlicensed individuals willing to work for less, but a standard menu of construction options and prices, similar to the ones used by auto mechanics, will smooth negotiations involving repairs.

6) A standard service (bonded & insured) for showing homes to prospective buyers and inspectors will be established. This is already being done by discount brokerages.

These six changes will virtually eliminate the need for commissioned real estate agents.

The happy side effect will be a dramatic increase in the liquidity of real estate, which will lead to the rapid revitalisation of all distressed neighborhoods. I will explain how this works in a future post.

2 Comments:

  • At 12:28 am, Blogger Dale said…

    I'm very much digging your theories. Again, Levitt has analyzed the realtor phenomenon. They exist only to jealously guard information.

     
  • At 8:11 am, Blogger Ian said…

    I enjoyed this post extensively. Dale, Levitt is dead on, Jealously guarding information is all that they do well.

     

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