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GLOSSARY 199A key question is whether new services will be provided
primarily by new, specialized, e-commerce firms, or by al-
ready existing firms in the industry. Generally speaking,
new e-commerce firms will have better information re-
garding the new electronic techniques, while the existing
firms will have a comparative advantage in information
regarding the real estate market itself. The “winners” will
be those firms, new or existing, that can combine both
areas of competence to create value-added service prod-
ucts for the real estate industry. In this respect, the ad-
justment of the real estate industry to the Internet is sim-
ilar to that of established firms in many other economic
sectors.
In the areas of real estate brokerage and real estate
lending, it appears that traditional firms are likely to
continue to dominate the real estate service markets. In
the real estate brokerage area, control of new real es-
tate listings and multiple listing services by traditional
firms should allow these firms to continue to dominate
the market. In the real estate lending area, automated
techniques were rapidly adopted by most existing lenders,
thus taking the initiative from new e-commerce entrants.
In both cases, however, the traditional firms will have to
continue to innovate and adopt new electronic techniques
to sustain their dominance.
In the areas of real estate appraisals and construc-
tion project management, in contrast, new e-commerce
firms may well dominate. In the case of real estate ap-
praisals, the existing industry may be too slow to adopt
the new electronic techniques, and thus ultimately may
lose their market share. An important factor here is
that the existing industry consists largely of very small
firms, often just individuals for whom it is not feasible
to adopt the new techniques. In the case of construc-
tion project management, basically a whole new service
area is being developed, so by its nature it requires new
firms.
There is also the question whether the adoption of e-
commerce techniques in real estate service markets will
create incentives for mergers across service lines, creating
multiline service providers. For example, is the merger
of real estate brokers, lenders, and insurers into single
mega-sized firms likely? E-commerce can provide incen-
tives for such mergers as a result of the network exter-
nalities and economies of scale discussed earlier. Specif-
ically, e-commerce techniques may provide an important
means to bundle and cross sell real estate services. On the
other hand, regulatory prohibitions are the main reason
that existing real estate service providers have not already
merged in order to bundle and cross sell their services.
Thus, the creation of highly integrated e-commerce real
estate service firms would require a significant change in
the regulatory environment, something unlikely to hap-
pen rapidly.Impact on Real Estate Markets
Decreasing transaction costs and relatively low barriers to
entry have increased competition in some sectors of the
industry. Costs have been lowered by shortening the trans-
action cycle and by precise market targeting, in addition
to the savings in information dissemination. A major openTable 6Potential Effect of Internet and E-commerce on Real
Estate By TypeThrough Type of Internet
Category of Real Estate Related ActivityOffice Telecommuting
Residential Telecommuting
Warehouse E-commerce
Retail E-commerce
Hotels/Resorts Online Reservationsissue is whether the Internet and e-commerce will have a
significant overall impact on the demand for various types
of real estate (see Table 6). There is some mixed evidence
on the impact of e-commerce on retail real estate mar-
kets. Schlauch and Laposa (2001) reported that retail-
ers who incorporate online operations into their overall
real estate strategy manage to lower somewhat their real
estate related costs. At the same time, new electronic
retailers—that is, retailers who conduct business purely
over the Internet—are increasing the demand for ware-
house space.
In the long run, the fast growth of electronic retailers
and the slower growth of traditional retailers may create
a shift in real estate demand from traditional retail space
toward warehouses. There might also be a net contraction
in total real estate demand, since the electronic retailers
will likely require less space per dollar of sales. In the short
run, however, the total demand for real estate may actu-
ally expand, since traditional retailers may contract very
slowly, while the new electronic retailers are expanding
very rapidly.
Whatever the details, the fundamental point is that the
real estate markets will be most influenced by those firms
that can create value at the intersection of real estate and
Internet technology.GLOSSARY
Agent, real estate Another term for real estate broker.
Appraisal, real estate Estimation of market value of a
property or home as concluded by a third party, usually
a licensed professional.
Broker, real estate An entity or person who brings to-
gether potential buyers and sellers of real estate and
generally charges a fee for the services. In most states,
real estate brokers must pass exams to be licensed. Bro-
kers may also act as intermediaries in leasing transac-
tions.
Commercial real estate Real estate properties used for
commercial purposes, including office buildings, shop-
ping malls, and hospitals, among others.
Development, real estate The process of transforming
vacant or underused land into residential or commer-
cial real estate.
Economies of scale Situation in which the average pro-
duction costs fall the greater the volume produced.
For sale by owner Properties that are listed for sale by
the owner, without the use of a real estate broker.