The Coming Downsizing of Real Estate: Implications of Technology
Baen, John S, Guttery, Randall S, Journal of Real Estate Portfolio Management
Executive Summary. Currently there is explosive growth in the availability of databases that may be merged to create "user friendly" real estate-related market information and services. A reduction in traditional personal customer services required (e.g., Competitive Market Analysis), and the ease of collection, assimilation, and processing of information, will have major implications for the real estate industry and future employment prospects. This study collects employment trends by SIC codes and other sources, and analyzes the rapid changes occurring in the areas of real estate brokerage, finance, appraisal, leasing and title insurance, due to technology. The findings suggest that the number of real estate participants currently employed should decline significantly because of increased efficiencies. Property buyers and sellers may eventually receive an income transfer from licensed agents, lenders, appraisers, attorneys, and loan servicers.
Real estate agents, appraisers, mortgage loan originators, and title companies exist in part because of inefficiencies in the traditional real estate market. The lack of cheap information transfer between buyers and sellers of property and/or between mortgage borrowers and lenders, combined with the requirement of independent estimates of value and confirmation of valid land title, has in the past meant full employment for millions of Americans. This is shown in Exhibits 5-9. For example, over the period 1982 through 1996, a yearly average of 513,000 people were employed full time as real estate agents or managers, 1.7 million worked in the banking industry, 153,000 were mortgage bankers/brokers, 797,000 provided legal services, and 121,000 were subdividers and/or developers.
The current rapid growth of both consumer and real estate service provider business computing, coupled with the growing availability of market information databases for real estate participants, are revolutionizing the real estate industry. The real estate property and mortgage markets, together with all supporting professions and service providers, are experiencing a paradigm shift that will have major implications in levels of employment and compensation. This will reduce prevailing, comparatively high, transaction costs associated with the sale/purchase of all types of real estate. Current Internet Real Estate Customer Profile
It has been estimated by Dun and Bradstreet (1996) that 17% of North Americans age sixteen or older (thirty-seven million people) have Internet access, and 65% of these people used the Internet during the first quarter of 1996. The demographic profile of Internet users includes the following: 66% of Internet users are male; 25% of Web users' household annual income exceeds $80,000, while only 10% of the general population earns such income; 50% of Web users, compared with 27% of the population, consider themselves to be in professional/managerial occupations; 6 64% of Web users have at least one college degree, compared with 29% of the total population;
Web users average 5.5 hours per week on the Internet, compared with 2.5 hours on other online services.
An announcement in March 1996 that AT&T would provide customers with five hours per month of free Internet access, and unlimited access thereafter for $19.95 per month, creates potential new links between the World Wide Web (WWW) and AT&T's millions of phone customers. This is only the beginning trend in the increasing availability and falling cost of both phone service (e.g., cellular phones) and the Internet.
The implications for the real estate industry are potentially enormous. In January 1995 there were approximately 100 real estate Web sites that offered real estate for sale. By year-end, there were over 4000 real estate-related Web sites. Exhibit 1 provides a sample selection of thirty-six randomly chosen Home Pages and a brief overview of their services offered. …