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194 REALESTATE
real estate construction project. These participants
include developers, architects, city permit inspectors,
lenders, investors, workers, material suppliers, to name
just a few. For the construction process to proceed
smoothly, it is critical that all these participants be aware
of what all the other participants are doing on a real-time
basis. It is equally clear that high-cost mistakes can readily
occur if such communication fails to occur. E-commerce
allows the creation of a virtual community in which all
these participants are members, and through which in-
stantaneous communication, coordination, and collabo-
ration can occur at very low cost.
Economies of Scale
Database services often exhibit economies of scale since,
as the volume of users rises, the fixed cost of creating the
database can be spread over a larger number of users.
One example of such a database in real estate markets is
the set of information that can be distributed to poten-
tial homebuyers in a specific community concerning the
characteristics of that community, such as schools, parks,
and other public services. The delivery of such informa-
tion can occur through a virtual community, showing that
in the application of e-commerce to real estate both net-
work externalities and economies of scale often interact,
increasing the benefit of each one.
Specific Interactions of E-commerce
with Real Estate Markets
E-commerce is especially valuable for real estate because
real estate markets use a great deal ofintermediation re-
sources,the technical term for the brokers and agents
who expedite real estate transactions. Examples include
real estate brokers (bringing buyers and sellers together),
mortgage brokers (bringing borrowers and lenders to-
gether), and insurance agents (bringing insurance com-
panies and their customers together). These intermedi-
aries provide valuable services, which is why real estate
market participants are willing to pay their fees. At the
same time, the intermediaries are only a means to an
end—to complete a real estate transaction—and the mar-
ket would function better if their services could be pro-
vided in a more efficient manner. Underlying the potential
of e-commerce to provide such intermediation services in
a more efficient manner are the two factors discussed in
the previous section, network externalities and economies
of scale.
Real estate markets tend to maintain a stock of vacant
units, since the matching of demand and supply is always
imperfect and takes time. Therefore, the effect of a more
efficient process of intermediation between demand and
supply is likely to be a reduction in the long-run, natural,
vacancy rate. This reduction in the number of vacant units
is a social benefit, since it means these resources can now
be put to some other use.
REAL ESTATE MEETS THE INTERNET
Real estate firms and related businesses were among the
early private sector pioneers of Internet use and have
had a fast growing presence on the Web. One example
Table 2Stages of Real Estate Web Sites
The Informational or “Presence Signaling”
Stage
Staking Claim to space on the Internet; Basic
Information Dissemination
The Brochure or “Marketing/Advertising”
Stage
Detailed Information; Customer Service; Internet
as Marketing Tool
E-commerce or “Cyberspace Office/Store”
Stage
Transactions on Web; Full Service Office in
Cyberspace
Multilateral Collaborative Stage (For Some)
Multilateral Coordination/Collaboration in a Virtual
Community and Interfirm Linkages for Complex
Production Activity
of the real estate sector’s presence on the Internet in its
pre-World Wide Web incarnation was the real estate clas-
sified bulletin board of Prodigy, the online service which
had listings for homes and other real estate. Some real
estate related Web sites started in 1994. For example, the
New York City Real Estate Guide Web site, created in the
summer of 1994, was one of the first to offer free access to
the latest New York real estate information. By the sum-
mer of 1995, the site was receiving more than 100,000
inquiries a month.
By the end of 1995 there were close to 4,000 real estate
Web sites. The content of these sites, as well as the mix
of real estate related firms on the Web, has changed over
time. Initially, quite a few of the sites were residential real
estate brokerages and listing guides, but fairly rapidly the
list expanded to include commercial and retail listings,
mortgage brokers, appraisers, architects, real estate at-
torneys, developers, construction firms, and suppliers. As
investment vehicles for real estate expanded, real estate
investment trusts (REITs), publicly held firms, and invest-
ment advisors also added Web sites. A particularly high
proportion of real estate brokers are taking advantage of
Web technology. A survey conducted by Real Estate Bro-
ker’s Insider in their February 1998 issue confirmed that
nearly 95% of the respondents/brokers had a Web site, and
that even back then, more than 90% of the housing stock
on sale at a given time was listed on the Web.
Existing private sector real estate Web sites can be cat-
egorized into three, or possibly four, types, as summarized
in Table 2; see also Table 3 for different e-commerce mod-
els in real estate, such as business-to-business (B2B) and
business-to-consumer (B2C).
The most basic sites provide simple information dis-
semination. The firm registers a Web site and develops
a page giving basic company information, signaling its
presence on the Internet. The second stage involves us-
ing the Internet as a marketing and customer service tool.
From a marketing viewpoint, information dissemination
and customer services on the Web can be monitored and
analyzed differently from conventional methods. Internet