Real estate online: cyberauctions, cybercontracts... cyberhassles?

The story couldn’t get a lot simpler: Microsoft’s online auction software is moving into real estate. The ramifications for the industry are obvious. Big money, big possibilities. The industry’s pretty pleased, too.

So are consumer advocates, who think the real estate agent could become “extinct”. On the face of it this looks like a natural extension of the existing online real estate sales, but there’s a bit more to it than that. For a huge global industry, one of the biggest, in terms of capital, this is new ground. The first auctions will be held on the 5th of November, Guy Fawkes Night for those who remember. This time it could be an explosion of much greater magnitude. Commercially, after the wrinkles of online transactions are sorted out, they become commonplace. There might be three people left in the Western world that haven’t done business online, but not many more. The real estate industry is largely online, anyway, but this is a different approach which means a lot of the office work is done in a few clicks. It could save thousands per purchase, easily, and free up staff. That does make a difference. Titles, encumbrances on properties, the entire framework of property law, could go online, which would revolutionize a paper-suffocated industry. For Australia, with the Torrens Title system, which is a lot more advanced than the US system, this process would be brilliant. Our entire industry is operating at paper speed at the moment, but it could easily ramp up to online transfers. For those still wading morosely through the title deeds type of system, it would be an overdue escape from the Stone Age. (I believe Ramses 2 is still waiting for that pyramid to finalize.) For property owners, it could be a godsend. Just about everything comes in measurable quantities, including time and fees, so a few of the more open-ended uncertainties are removed. The potential buyers market is greatly enlarged. Anyone with a phone, anywhere on Earth, in theory, can bid online. Obligations on bidders are likely to be fairly stringent, but that’s hardly unreasonable. The likelihood of real estate agents becoming “extinct” is pretty debatable, though. They’re the definitive local business. Local knowledge is valuable, and so is good service, as anyone who’s ever attempted to buy a house in a new area would know. Ignorance and lack of information are serious problems, by definition. The advisory component is always useful. Although the Daily Telegraph article mentions a quote from a consumer advocate that “the more distance that buyer put between themselves and agents the better”, I’d say that’s going a bit too far in the other direction. Somebody has to work for the vendors and talk to the buyers, and it’s hardly good practice to have completely unaccountable, anonymous, parties handling six figure plus transactions. If anything, the online process adds some verification to the accountancy, as well as “what was said to whom”. The consumer problems are more likely to be in the detail, from data entry to server neuroses and back again and that's just the basics. Bigger problems arise from the nature of the beast. The quality of properties is also big issue, and a nasty one. You can buy houses online anywhere on Earth, and what you see and what you get aren’t necessarily the same thing. There’s no actual law saying “Buyer Beware”, anywhere on Earth. The theory is that you buy under a set of guidelines and following established practices. Buyers and sellers should have a working system that allows issues to be found and resolved. You shouldn’t be lumbered with a sale that causes liabilities to anyone. That’s where the real test will come. Auctions are high energy transactions, and bring a lot of heat with them. The industry likes auctions, because of the extra capital they generate, and will want this system to succeed, preferably spectacularly. The expectation will be that (a) it delivers, (b) it gets a reputation as a safe way to buy property, which of itself would be no small achievement, and (c) all the legals work properly, which will ultimately mean standing up in court in disputes. This could be a very self defeating process if those expectations aren’t met. The downside, in a globally depressed, wounded, housing market, would be another turnoff. Housing lenders will need to be appeased, too. If the online auctions become a synonym for risks, they don’t have to play ball, and probably won’t. There’s nothing to prevent them from pulling the plug on finance if they don’t like the methods. We will see. Expect a very tense silence if it doesn’t work.