Case Study

RealEstate.com: Buying and Selling Homes Online

The real estate market might be considered the holy grail of B2C e-commerce. Many respectable companies have search for it, but none have returned with the prize. Consider Cendant, one of the foremost providers of travel and real estate services in the world. In 1997, it published a Web site that automated the time-consuming process of closing a home sale, eliminating huge amounts of paperwork. That business failed. It then produced Move.com, a one-stop Web site with home listings and tools for home buyers and sellers. That idea also failed. More recently, Cendant tried to create a discount online real estate broker called Blue Edge. That, too, failed. The reason for these failures seemed to stem from the customer's unwillingness to trust important transactions to automated systems rather than competent human brokers. Cendant's frustrations with online real online were shared by many others seeking to win the grail.

The dot-com boom spawned dozens of Internet-based brokers and other cyber real estate ideas. "Microsoft, Yahoo!, everyone and their brother poured a lot of money into real estate," said Brad Inman, a longtime publisher of real estate trade news. "They come in starry-eyed and say these Realtors are idiots. They spend a lot of money. And they realize they can't unlock the role of the Realtor. So they get out."

After ten years of failed attempts at this market, most have given up, figuring that the role of the Real Estate brokers simply cannot be automated. Some people, however, find this $1.5 trillion market irresistible and continue to look for new e-commerce services that will attract home buyers. Barry Diller, CEO of InterActiveCorp, is just such a person. InteractiveCorp is the world's leading multibrand interactive commerce company. InterActiveCorp owns Expedia.com, Hotels.com, the HSN channel, Ticketmaster, Match.com, Hotwire.com, LendingTree.com and other companies.

On the subject of online real estate, Diller commented, "If you think about real estate, with one million brokers and trillions of dollars in commerce and information that now is able to be accessed by individuals with great ease, it is a perfect place for us to play. Right now, online adoption is tiny and over time it will grow.

Studies show that the Web does play a role in the real estate market. Three-quarters of home buyers turn to the Internet to look at listings and learn about neighborhoods. Then they return to realtors to visit homes and negotiate their deals. Diller wants to build a business that links Web shoppers with brokers. He bought RealEstate.com to accomplish his goal. RealEstate.com is run under the popular LendingTree.com umbrella, but unlike LendingTree, the site focuses exclusively on real estate: finding a home, finding a realtor and finding a mortgage company.

You might wonder how a business can profit from connecting customers with realtors. The answer is that the service is provided at the expense of the realtor. While RealEstate.com isn't out to replace the realtor, it does take a substantial cut from the realtor's commission: one third to be exact. A portion of the percentage of the commission that RealEstate.com earns is given back to the customer in the form of gift cards for Home Depot.

For example, if you chase a $220,000 home through a realtor you met through RealEstate.com, you would get a $1,000 gift card for shopping at home Depot.

RealEstate.com seems to be providing service that interests home buyers. It appears that InterActiveCorp has finally achieved what so many others have attempted but failed at - delivering a profitable e-commerce real estate service.

Discussion Questions

1. Why is it so much more difficult to sell homes over the Web than other products such as air travel and hotel rooms?
2. Besides homes, what other products are difficult to sell on the Web? Why?
3. What make Dillers wants to build a business that links Web shoppers with brokers?

Critical Thinking Questions

4. Why do people seem to distrust automated systems when it comes to real-estate transactions?

5. Do you think that such business model can be applied in Malaysia or not? Why or why not?