It will take time, but the Internet is modernizing real estate sales

When a federal judge in California recently let a New York Web site continue to list homes for sale in the Golden State, it marked another halting step by the world of residential real estate down a path already trod by Wall Street, among many others.

ForSaleByOwner.com, in exchange for $699, will publicize the home you are trying to sell. But because the site is not a licensed real-estate agent, California’s Department of Real Estate had argued the site was violating state real-estate law. Judge Morrison England Jr. ruled that the law was unconstitutional.

Expect a lot more cases like this. The world of residential real estate is a collection of related cartels that are in various stages of being broken up, with both regulatory and technological forces doing the honors. This story is much like what happened with stock trading, which in a generation has gone from being paper-based, oligopolistic and excessively pricey to being electronic, more decentralized and almost free.

Residential real estate changes hands in a process that has pieces of both the 19th and the 21st centuries. Some steps, such as getting a credit rating, are computerized and virtually untouched by human hands.

Other parts would make Dickens feel right at home. For example, because most banks and regulators still require a paper version of every mortgage document, there are companies in the business of providing “Raiders of the Lost Ark”-style repositories for mortgage documents. That is despite the fact that an electronic version of all that data could fit on a few disk drives just like the one in your PC.

The issues in the ForSaleByOwner.com case are some of the best known in this transformation of the industry: the role that licensed real estate agents need to play.

Actually, this part of the process has changed lately more than many people realize. Realtors have often been criticized for protecting their ranks — and their 6 percent commissions — by controlling access to the Multiple Listing Service, as the master list of property on the market is called.

But that once formidable MLS monopoly is slowly unraveling. Realtors themselves are giving consumers direct access to MLS data via their own Web site, Homestore.com. Even more complete MLS listings are offered by a new crop of Web-centric real estate companies, such as ZipRealty Inc., which brags of a “virtual network” of licensed agents that it says will sell your home for 25 percent less than a traditional Realtor.

Another big part of real estate involves mortgages, and here the effect of the Internet has been dramatic. Already, online rate shopping has become commonplace, and more is on the way. For instance, Jerry Halbrook, chief operating officer of Nexstar Financial, which develops mortgage technology, says that companies are beginning to experiment with “electronic signature” technology to replace the stack of documents that need to be signed with every mortgage. In the future, he says, you will be able to do all of that by, in effect, checking boxes on a Web site.

There are other parts of the real estate world that are, for lay people, particularly obscure. Not coincidentally, these are some of the most inefficient and resistant to change.

Consider title insurance, which is a guarantee to your lender that there are no other claims on your property. It is one of the most profitable parts of the real-estate world, and one of the most expensive. Yet because it is lumped in with other mortgage “closing costs,” most homeowners know little about it.

I, for one, was startled to discover that in a trio of refinancings over the last six years on my San Francisco home, I’ve paid $2,500 for three separate title policies. Nothing about my property has changed; it has long been known to be free of liens, easements and other title-related surprises.

Last year, Radian Group, a Philadelphia financial services firm, tried to offer a new, slightly limited, title insurance that would have cost just $250 for a refinancing. Radian did this by taking some obvious steps, such as collecting county property data into an easily searchable computer data base.

Title companies, though, didn’t like the competition, and they persuaded state regulators to prohibit the company from doing business in California. Radian says the decision had the effect of keeping it from offering the policy anywhere in the country, and it is appealing. Title companies, for their part, say they were only trying to protect the solvency of the industry; consumers, they say, would suffer if title companies defaulted on claims because one company was cherry picking the most lucrative business.

Last year, the U.S. Department of Housing and Urban Development made a push to try to make settlement costs more easily comparable between different lenders. There was the predictable industry outcry, and the department backed down, though it says it will revisit the issue next year.

It should. Transaction costs for real estate are now about the highest for any form of property. We will never see the day when, as it does with stock, a real estate trade will cost $10. There is no reason, though, that it can’t be markedly cheaper; computers can help a lot.