Will Real Estate Agents Be Necessary in the Future?

Recently, The Motley Fool sat down with Zillow (NASDAQ: ZG  ) CEO Spencer Rascoff to get an update on the company's current strategy and learn more about how Rascoff sees Zillow's future opportunity. Joining Zillow as one of the founding employees in 2005 and at the helm since 2010, Rascoff brought Zillow through its IPO and has overseen the strategy that has led Zillow stock to more than triple over the past 17 months.

The role of real estate agents is changing, Rascoff says, but agents themselves will always be necessary in a way that travel agents no longer are. While travel is a commoditized product that lends itself to direct purchase, the real estate transaction is larger, more complex, and more emotional, he says.

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Brendan Byrnes: Looking at your background, you're a co-founder of Hotwire, which was sold to Expedia -- which I think is interesting because it's the model where the travel agent is disrupted by Hotwire, but now with Zillow we're looking at it where you guys work with the real estate agent. Some say there might be some parallels there.

Could you talk about why that's different, and why you work with the real estate agent with Zillow, as opposed to disrupting them and going straight from buyer to seller?

Spencer Rascoff: Travel is a commoditized product, and therefore the role of the intermediary was not really necessary. The intermediary, the travel agent, was able to be replaced by the Internet.

Real estate is totally different. The real estate transaction is complicated, it's emotional, it's expensive, it's infrequent; all of these things lend themselves to the importance of an intermediary -- not unlike the role investment bankers play in IPOs, or in advising on the sale of one's company.

There will always be a real estate agent in the transaction because, for most consumers, it's just too important and too expensive and too infrequent and complex to screw up, so they need an agent.

Now, what is changing though -- and Zillow is undoubtedly accelerating the change -- is what type of agent can be successful in 2014. It's quite different than the type of agent that was successful before the Internet.

Today, a good agent has to be an expert negotiator. They have to be a great marketer. They have to have deep local expertise. They have to be a transactional guide to a client.

Whereas, before the Internet, a great agent just had to be an information gatekeeper; someone who had access to the secret database that you and I didn't have access to. Those days are long gone. Now we have access to all the same information as a real estate agent because of mobile devices and the Internet, so the role of the agent is changing.

Byrnes: You think, even looking out over decades, that the real estate agent still has a role?

Rascoff: Definitely.

Byrnes: We're talking about big-time commissions here, 5-6%. You look at other countries, Europe especially, the median commission is lower. Is there anything that can change over the longer-longer term or do you think, literally, decades to come ...?

Rascoff: There always has been, and there probably always will be some small part of the market -- maybe 10-20% at most -- that's transacted through alternative means, whether it be through auctions or consumer-to-consumer.

But the bulk of real estate transactions in the U.S. will always be professionally assisted. There will always be commissions collected in that transaction.

I view it quite a bit like health care. The Internet has empowered all of us, as patients, to now be able to have access to the same information as doctors, and we can self-diagnose, but still most people go to the doctor when something is concerning them.

The role of the doctor has changed. Now the doctor has to help you interpret what you see on the Internet. The old role of the doctor used to be, they were the ones with the secret access to information -- literally -- with a secret book of all the names of the diseases and all the drugs and all the side effects.

Well, it's called the Internet. That is available for everybody. The role of the doctor is now to help you interpret all the stuff you see on the Internet. The role of the real estate agent is changing, but they're still every bit as much in the transaction as they were before.

Read/Post Comments (3) | Recommend This Article (5)

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  • Report this Comment On April 14, 2014, at 6:28 PM, elizalawrence wrote:

    It is cool to think that we will always need real estate agents. Traveling really is becoming easier to do on your own, where as with finding a house things can be a little more difficult. It is so much less stressful when you receive professional help.

    Eliza Lawrence |

  • Report this Comment On August 20, 2014, at 1:44 PM, amberjohnson3620 wrote:

    I think you are right, real estate always has and always will be important. My husband and I are looking into buying more real estate. I think that it is a good investment. I hope to do some more research on it soon.

    Amber | <a href='' ></a>

  • Report this Comment On August 15, 2015, at 3:26 PM, MarcellaL wrote:

    I agree that most people will feel more confident using a realtor as a guide, but believe their commission prices should come way down. After a deal is made, the title company does all the work. Most deals are uncomplicated and do not deserve 5 to 6% in fees. Possibly 3 to 4% is more reasonable; 0.75 to 1% for each sides broker and realtor.

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Brendan Byrnes

Originally joining The Motley Fool in 2011 as editor of the Industrials sector, Brendan is now based in New York City where he interviews executives, authors, and influential people from across the investing and business world. He also provides analysis for

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