Yesterday we looked at how Media has been disintermediated and transformed during the past 30 years. Today we look at two industries that are on the threshold of some degree of disintermediation. Using the four part definition of the term , it is clear that real estate and insurance are going to be reorganized from historically developed structures, transactions, fees and processes.

Real Estate

Real Estate is very interesting. We are going to concentrate on residential real estate for this post, because close to 70% of American families own their own homes. A much lower percentage of Americans have experience in commercial real estate. Since all real estate is local, there will be exceptions to the following generalizations, but speaking generally:

-Real estate agents have been very resistant to changing their commission structure.

-Historically these agents have tried to keep listing data to themselves.

-There is now an incredible amount of real estate price information on the Internet and it is very easy to use the Internet to market a property to a global potential customer base.

-In the last few years there has been a dramatic increase in the number of “For Sale by Owner” or FSBO listings, due in part to a heated real estate market where the perception is that if one puts a good property on the market it will sell whether an agent is involved or not. The Internet supports this FSBO effort.

-Agent compensation doesn’t seem to be tied to performance as much as tied to the past. This is always deadly in a service business, as people will increasingly look for the best value in a service relationship. This is a point that Dubner and Levitt put forth in their wonderful book “Freakonomics” (readers know that these two have had kind words for this blog, and that I think highly of the book, a must read if you haven’t already enjoyed it.)

Now, if you are a real estate agent, please don’t think I am criticizing you; I am not. Instead, please take this as a friendly warning that if you are not open to finding new ways of charging for your services, the market will soon start to dictate how you will be allowed to charge. Information empowers people and all of the above statements point to a situation begging for disintermediation. Adapt now and stay ahead of the curve or hold on to ‘the way we’ve always done it’ at your true peril. Here are some things to consider:

-Always remember you are providing a service to your client, bringing value such as the saving of time, which saves money. People will pay to have the ‘heavy lifting’ done for them. People pay for that and for good financial results; provide both.

-Be willing to come up with innovative commission deals so that if you do a good job you will make more than if you just did an acceptable job. An example would be to accept a lower commission on the listing, say 4%, but take a 20% share of the price over the listing price. Another example is if a seller needs to sell quickly, build in a bonus if the property is sold within a short amount of time. Now all of this can be manupulated around the listing price, but the buyer will think more kindly and supportively about your efforts as your self interest and theirs are aligned. Create a mutually agreed to fee arrangement with the seller. Good brokers will make more money, bad brokers will make less money. If you are good, don’t be scared, show how good you are and you will have your choice of clients.

-Remember that disintermediation removes ‘excess’ compensation for intermediaries. That means that either fees will come down for the same job or will stay the same for a superior job, where value has been added. Become a discount real estate broker or add a new higher level of service and customized fee structure. As an agent you will soon have a choice to make.


If you watch TV you will have inevitably seen a commercial from an insurance company asking you to call or go on-line for a quote that will save you money. This is direct marketing from the company to the consumer, cutting out the cost of paying the agent commission. This is a clear example of disintermediation. Why do you think that the other type of insurance commercial is all about the agent being helpful to the customer? Because that is the only value left. Twenty years ago, the only way to learn about insurance was to meet with an agent, now all the information you need is on-line.

In the last century, each community had an insurance agent that provided a service and information, and everyone went to him as it was the only place to go. Today, if that agent is not providing some truly added service value, he will wonder where their commissions went as everyone can buy insurance direct. The days of simply sending out renewal notices, without providing any added value, will soon be over. Canned newsletters and refrigerator magnets are not added value.

In a fear based industry where ‘life insurance’ is about death, ‘auto insurance’ is about accidents, and ‘homeowners insurance’ is about fire, theft and flood, it is time to be real and help the customer get the lowest price or they will get it themselves. When the insurance companies believe they can create a direct relationship with the customer without an agent, either the agent goes away, accepts a lower commission, or provides a personal service beyond information about products.

In summary, the real estate and insurance industries are two of the obvious areas that are ripe for disintermediation. There are a number of other areas that will be disintemediated to some greater or lesser degree. Just look to the four definitions and meanings stated in previous posts to remind you where disintermediation will occur.

At a higher level there are major historical institutions that are about to undergo radical restructuring because of the era we are in and the power of the Internet to bring about change. More on that subject in the not too distant future.

5 Responses to “Disintermediation #3 Watching Video, Selling a Home, Buying Insurance – part 2”

  1. Grant Says:


    I like your realtor commision idea, and I think we discussed this topic in our phone conversation.

    As a homeowner, you have to create worthwhile incentive for your agent to get top dollar for your house. I believe you can get your agent to work harder for you if you give them a larger piece of the pie if they bake you a larger than normal pie.

    The problem with FSBO sites on the internet is that there are so many of them. There is no standard. The MLS system is the accepted standard if you list your house with an agent. It would be nice (at least from a buyers standpoint) if you could get a FSBO catalog system in place, much like the MLS system, that gives your FSBO a number…


  2. Everyday Economist Says:

    At the same time, this is a beautiful opportunity for anyone who assists in the Disintermediation.

    i.e. Google earth + realestate values = They make some pretty good money by assisting in the disintermediation.

    Disintermediation can be very good if you position yourself on the right side of it, are flexible, and willing to adapt. “Holding the course” will leave one complaining that things changed.

    This site is a valuable resource for those who will heed and adapt, and probably will be ignored by those who don’t want to admit the world changes.

  3. david houle Says:

    So someone should combine the above two comments. Disintermediation meets entrepreneurship; someone should start a national FSBO site.

    I have emphasized disintermediation because I really beleve that in ten years we will look back and be astounded by how much of it has occurred. Opportunity if you accept it and study it, pain if you don’t.

    A couple of more posts on the subject to come.


  4. Richard Holcomb Says:

    As one in the residential real estate business we are seeing more and more “new” ways of doing business… from discounting fees to offering additional services. In our case, included in our commission structure we offer our clients a substantial amount of advertising in both our monthly magazine, website and weekly television show to help move the property more quickly. It works for us and certainly bodes well for your analogy that times are changing and we had better change with the times or be left far, far behind.

  5. The Corner Office Blog - An entrepreneurs thoughts on business, personal finance and investing. » Blog Archive » MLS For the Little Guy Says:

    [...] Another big step for the real estate industry, and yet another example of disintermediation brought to you by the internet. [...]