UALR, Syracuse, Penn State Researchers Chart National Real Estate Industry Struggles in New 'e'conomy

5/18/2004

From: Amy Barnes of the University of Arkansas at Little Rock, 501-569-3194 or 501-837-8477 (cell), aobarnes@ualr.edu

LITTLE ROCK, Ark., May 18 -- Online mortgage and real estate brokers have not dramatically changed the way Americans buy and sell homes as business, financial, and academic sources have predicted, but a new national study also shows that technology is changing traditional roles played by real estate agents, lenders, and buyers. Web-savvy homebuyers have triggered increased competition, which among other things, has produced lower commissions in many regions of the country.

The new national study by information technology and business researchers at the University of Arkansas at Little Rock, Syracuse University, and Penn State discovered that consumers, while doing much more of the initial legwork, still want to interact with traditional real estate professionals, especially in the latter stages of buying and selling a home.

The research, funded by the National Science Foundation, found that the traditional real estate industry acknowledges that online brokers and agents are a threat, especially since more than 70 percent of all home buyers begin their search for a new home on the Internet. Competition, however, between the new and traditional markets is not as fierce as many expected. Less than 1 percent of the 5 million homes bought and sold each year are closed online.

"There was a time when it was assumed that agents would be 'disintermediated' -- bypassed -- as buyers and sellers find each other on the worldwide web," said Dr. Rolf Wigand, who holds the Jerry L. Maulden-Entergy Chair in the Department of Information Science within UALR's Donaghey College of Information Science and Systems Engineering - the CyberCollege. "The previous information monopoly on the Multiple Listing Service (MLS), for instance, has been broken, giving the consumer the freedom to search the MLS and web-based market alone. But technology has not entirely replaced personal interaction with agents."

Wigand conducted the study with colleagues Kevin Crowston, a professor at the School of Information Studies at Syracuse University, and Steve Sawyer, a professor at the School of Information Sciences and Technology at Pennsylvania State University. In cooperation with the National Association of Realtors -- with a national membership of 860,000 -- the three researchers drew a stratified random national sample among real estate agents. The 4600 agents received a mail questionnaire that they completed and returned.

The researchers found that several factors keep consumers from turning completely to Internet agents: a general lack of actual "face time" with online agents and brokers; buyers aren't always happy to engage in house hunting alone; and a perceived lack of customer service since online brokers seem less motivated, working for a steady salary rather than uncertain commissions.

But the report, Towards Friction-Free Work: a Multi-method Study of the Use of Information Technology in the Real Estate Industry, confirmed there is still cause for concern in the traditional sector. The paper-laden process of closing a home could become a convenient web-based service if online companies have the resources to make it a paperless process. Major firms like Goldman Sachs and FrontLine Capital have those resources and are getting into the online business, which means more consumers might soon be bypassing traditional agents, brokers and lenders.

Right now, though, Wigand and his colleagues say buyers and sellers still want the "human touch."

"Buying a new home, typically coupled with a move to a new city -- the average American family moves every 7.5 years -- is a rather turbulent and stressful life event," said Wigand. "Agents can make the move less stressful, offering help that can't be found on the web or in the Yellow Pages."

Along with lowered commissions, traditional agents are "unbundling" their services to keep up with the real or perceived online competition, according to the study. An agent might agree to sell a house for a 4.5 rather than 7 percent commission and allow the consumer to choose additional services like open houses or printed flyers for an additional fee.

"This research demonstrates that the Internet is changing how people look for homes, as well as how they buy and sell their homes," Wigand said. "These developments clearly show that they are changing the real estate industry and are making the residential home market more transparent."