Can group buying deliver billions in savings annually to real estate consumers?
Monday, April 11, 2011 at 11:12PM 
A week after it was published, a story about Groupon's first real estate offer is still the most forwarded article on Inman News, the leading real estate technology web site. Beyond that, my Google alerts continue to forward a flurry of news stories, including one on AOL which questions whether the coupon is a good deal for buyers and another which asks if Groupon can save the real estate market.
My own reaction, as quoted by Inman News, was less enthusiastic:
"While there may be some bragging rights to being selected as the first-ever Groupon ad for real estate, that doesn't translate into offering the most value or best savings proposition if competing companies routinely offer rebates on buyer agency commissions or flat fees on MLS listings," Wendel said in an email. "Hopefully, any homebuyer or seller tempted to pay $25 should stop long enough to do some comparative research."
If they do, he said, "they are likely to conclude that it doesn't make sense to pay to go into anyone's lead generation system when competing real estate companies offer greater savings opportunities with no upfront cost."
Teachable moments like that are valuable, but the real payback of Groupon's entry into real estate isn't about coupons; it's the opportunity to seed systemic change by refocusing industry innovation on consumer savings, an estimated $30 billion dollars annually. Just as ordinary citiizens are making their voices heard as Congress debates what kind of government will emerge from the "Great Recession," consumers and change agents should ask what kind of reforms and new business models are needed to deliver billions of dollars in savings to homebuyers and sellers annually.
A year after the near collapse of Wall Street, it looked like real estate innovators were refocusing on that mission as described in our blog post, Comeback of the Consumer Value Proposition in Real Estate. (Ironically, the government got into the game, twice, but their $8,000 tax credit actually caused overeager homebuyers to miss larger savings -- an estimated $38,000 in Boston -- simply by waiting for price reductions.)
But back to the bottom line: how much is $30 billion? My guess is that it took Bill Gates a decade or two to amass a $30B net worth; and last week, the Democrats and Republicans nearly shut down the US government before agreeing to cut $38B in spending (the largest real dollar spending cut in American history according to the NYTimes). Hard to believe that real estate consumers could save $30 billion annually, but a number of studies have estimated that number (for details, see footnote #1 on Mark Nadel's Critical Assessment of the Traditional Residential Real Estate Commission Rate Structure).
If home buyers and sellers realized their economic value as a lead, they would ask real estate companies how much they'd be willing to PAY THEM upfront, rather than paying Groupon or anyone else $25 to get a discount at closing. Towards that end, new technologies and business models are being developed to enable homebuyers and sellers to issue Personal RFPs, or requests for proposals, to generate customized money-savings proposals, rather than group discounts, from competing agents based on specific services requested in their RFP.
What consumers need is a way to aggregate savings opportunities that already exist in the marketplace or that they can create through PRFP's from a wide range of sources including sellers, lenders, brokers, vendors as well as government agencies. What's the best way to coauthor a folksonomy or tagging system of savings opportunities (not just coupons) to deliver billions of annual savings to home buyers and sellers?"
For more information, see our previous blog post, Groupon for Real Estate or GroupCon? Choose MEGA-savings, not marginal coupons!
Reader Comments (13)
Sure it saves a ton...if you are a Group of One, and are savvy about values.
In SF the game is for one sharp investor to buy a 2-20 unit bld, and to evict the tenants and sell the individual units as TICs. ( 'Tenants in Commpn" units.) These are sold at about twice the "per sq.ft price" as was paid for the building as a whole.... (this is not a net profit of 100%, as the tenants are paid "walk away money", as set by loclal law, about $20K per tenant....
Basically this sucks... for the consumers... The middleman piece, to me, seems too big. The runup in unit cost is too much...
Government ought to do what it has to ...to cause the private sector to build LOTS of rental units. AND : once built as that, they should not be able to be changed into owner units.
Didn't Obama announce that he was going to appoint a land-use Czar? What happened to that? Cities like SF and Boston are completely dysfunctional among themselves and as we've seen actually pose a threat to the nation at large. In any case, I don't think Groupon is going to solve RE woes. Is it really better than Redfin or ziprealty? I guess maybe you don't get the attitude from other agents that you get when using discount brokers like these (in my experience, I've gotten nasty emails, refusals to show properties, etc).
Balor,
Thanks for your response. I am not suggesting the group savings are going to solve real estate woes, I am asking if the mass awareness they can create will cause the industry to refocus on saving consumers money. If they do, firms llke ZipRealty, Redfin, and thousands of lesser known "alternative" brokerages and agents will create downward pressure on commissions.
But savings from real estate commissions are only part of the money-saving opportunity, and group savings will help spread that news not just through buzz in the blogosphere but real discounts.
Thanks for your perspective, and Jack, thank you too!
Bill
I love groupon offers and I was shocked to see a real estate offer with a gift offer !! AWESOME!
You think you need any brokers now ?
Reci,
Not sure what your comment means. When you say, "You think you need any brokers now?" are you a broker eager to sign-up to work with Groupon, or are you suggesting that brokers will no longer be necessary?
Bill
Hi Bill,
The broker needs to make offers (give-away etc) to catch the people. No I am not a broker.
Thanks for that clarification, Reci. I agree that a broker may use an to catch someone's attention, but I hope that home buyers and sellers do more research beyond that to decide who to they would like to represent and advise them. That is a multi-dimensional decision, only one of which is how much will it cost to use this agent's services.
IMHO, return on investment (ROI) is more important than cost, so I hope home buyers ask, "Beyond the rebate, does this agent have a track record of saving real estate consumers money off asking prices?"
Likewise, I hope sellers ask, "Beyond this closing cost gift, does this listing agent have a track record of securing the highest possible sales price?" In the current housing market, sellers should be reminded that they do not need to pay someone to give away their home. By definition, homes should sell at their market value, so one could argue that selling "for sale by owner," ie. selling without the typical two-sided real estate commission, is a savings opportunity that goes way beyond the token closing gifts offered in Groupon's first real estate coupon.
Goupon is great for lead generation, but to add value the broker and buyer or seller need to do their homework and select the right agent.
Group Buying has also started in real estate market. Just saw http://www.groupbookings.in which offers huge discounts on property group buying. if this trend continues then no one will go to the developers and instead buy only through group booking websites.
Ravi
Based on my opinion, group buying may bring some savings considering the discount offers provided by group booking websites. However, if you look into the wider picture the discounts offered are not the ultimate solution that can help consumers in saving money. As always proper and thorough research is still the key for you to assess if a particular trend will work for you or not. You should not immediately consider a new idea just because of an attractive discount offer.
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Hi to all.A real estate agent is one authorized person making the purchase, sell or lease property much easier. People who have properties they want to provide other services to find a real estate agent value.Thanks for your nice post.Keep posting such a good post.
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