The Internet Encyclopedia (Volume 3)

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Real EstateReal Estate

Ashok Deo Bardhan,University of California, Berkeley

Dwight Jaffee,University of California, Berkeley

Introduction 192

The Interaction of E-commerce and Real Estate

Markets 192

Internet Attributes of Particular Relevance

to Real Estate 192

General Features of E-commerce and Their

Relevance for Real Estate Markets 193

Specific Interactions of E-commerce with

Real Estate Markets 194

Real Estate Meets the Internet 194

E-commerce and Types of Real Estate Firms 195

Real Estate Brokerage Services:

Disintermediation or Reintermediation? 195

Real Estate Auctions 196

E-appraisals 196

Real Estate Finance 196

Property Management 197

Project Management/Development and

Predevelopment 197

Relocation Services 197

Title and Other Property Insurance 197

Internet Use: The Experience of Real Estate

Firms and Consumers 197

Concluding Remarks: The Emerging Structure

of New E-commerce Real Estate Markets 198

Impact on Real Estate Firms 198

Impact on Real Estate Markets 199

Glossary 199

Cross References 200

References 200

Further Reading 200

INTRODUCTION

The diffusion of major new technologies impacts the econ-

omy in many ways. Their widespread adoption affects

the way things are produced, distributed, and consumed.

New technologies influence business organization, mar-

ket structure, and productivity, among other economic

variables. The Internet is no exception. Its convenience,

speed, low cost, and versatility are being exploited on a

daily basis in ever-changing ways. Industries that have

been functioning for decades in a traditional manner, such

as real estate, have also become major targets of the trans-

forming power of the Internet.

E-commerce has the capability of transforming the sec-

toral structure of the economy by creating new industrial

sectors or subsectors, by replacing existing, traditional

sectors and by changing the mix and range of services

provided. Real estate (broadly defined to include builders,

brokers, real estate services, and real estate finance and in-

vestment) illustrates all the mechanisms through which a

traditional industry undergoes rapid transformation un-

der the impact of the Internet. The Internet, including its

economic progeny e-commerce, has already influenced

the functioning of the real estate industry in direct and

indirect ways. It has become a marketing and sales tool

that allows a real estate business a greater reach than be-

fore. It has affected the location decision—where and how

firms do business—which in turn determines the role of

firms involved in brokerage, real estate development, in-

vestment, and finance. Reductions in transaction costs,

coupled with the qualitatively different nature of informa-

tion dissemination and communications are the primary

channels through which the Internet impacts the basic

structure and operation of real estate markets. The impact

of e-commerce on the provision of real estate services can

therefore occur through changes in either the cost or the

type of services. That is, e-commerce can do the following:

Reduce the cost of providing traditional real estate ser-

vices;

Expand the range, form, and content of traditional ser-

vices; and

Create new value-added services.

THE INTERACTION OF E-COMMERCE

AND REAL ESTATE MARKETS

The interaction of e-commerce and real estate markets in-

volves three sets of features. First, there are technological

characteristics of the Internet that have an impact on real

estate related activity. Second, there are general features

of the Internet and e-commerce that make its application

to real estate markets especially valuable. Third, there are

specific features of real estate markets that benefit in spe-

cial ways from the use of e-commerce. This section con-

siders these three forms of interaction.

Internet Attributes of Particular Relevance

to Real Estate

Together with other sectors of the economy, real estate

shares in some of the basic advantages of the Web, such

as ease of marketing, communication, and feedback from

clients, lowered costs of operations and sales, and conve-

nience of customer service and support. Indeed, because

of the dispersed, localized nature of information in real

estate, the prospective gains from information dissemina-

tion, ease of comparability, and Web links are particularly

significant for real estate firms (see Table 1).

192