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Will realestateagentssurvive?

nformation technology has the potential to fundamentally and radically reshapeorganisations and entire industries (Evansand Wurster, 1997; Mendelson and

Kraemer, 1998; Porter, 2001). In the airline industry, computerised reservationsystems have greatly increased the number of price points and enabled code sharing and various regional and global alliancesamong airlines. In the book publishingindustry, the move to digital technologies

in the 1990s changed the industry’s basic business model from make-then-sell tosell-then-make. The combination of the MP3 music format and peer-to-peer use of the internet seems poised to fundamentallytransform the structure of the music recording and distribution industry (Easleyand Michel, 2001).

While information technology has yet tomake much impact on the real estate industry,we suggest a fundamental transformation is

The transformation of the real estate industry by information technology

IBy Michael D. Myers and Kevin CrowstonBy Michael D. Myers and Kevin Crowston

I

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just around the corner. How will the real estateindustry be transformed by the ever-increasingpower of information technology? Will realestate agents find that their jobs are slowly, butsurely, taken over by systems and servicesprovided on the internet? Or will they find thatthe power of IT enables them to do their job evenmore effectively?

Over an extended period of time and usingmultiple research methods, we studied the use ofIT in the real estate industry in both the United Statesand New Zealand. We conducted interviews withreal estate agents in the US and New Zealand, helddiscussions with officials at the national realtorassociations in both countries, analysed industrydocuments and websites in both countries, andconducted surveys of real estate agents. Furtherdetails of our research methods and the researchproject can be found elsewhere (Crowston andMyers, 2004; Crowston, Sawyer and Wigand, 2001;Crowston and Wigand, 1999; Sawyer, Crowston,Wigand and Allbritton, 2003; Wigand, Crowston,Sawyer and Allbritton, 2001). Our findings suggestthree potential scenarios for the transformation of

the real estate industry by information technology:

SCENARIO 1Disintermediation of real estate agents (they losetheir jobs to IT) and some consolidation of theindustry.

SCENARIO 2Agents dominate the real estate market by usingtheir institutional advantages.

SCENARIO 3Increase of social capital for real estate agents(they use IT to gain more business).

Before discussing each of these scenarios andpredicting which we believe is most likely for thereal estate industry, we first explain our approach:the use of three perspectives for studying industries.

THREE PERSPECTIVES ON INDUSTRIES

e believe it is possible to view any industryfrom three perspectives (see Table 1). These

three perspectives are the economic, theinstitutional, and the social and cultural perspectives.We freely acknowledge that we have considerablysimplified these perspectives and we do not pretend

W

Will real estate agents find that their jobs

are slowly, but surely, taken over by systems

and services provided on the internet?

TABLE 1

Three perspectives on industriesPerspective

ECONOMIC

INSTITUTIONAL

SOCIAL ANDCULTURAL

Key focus

Relationbetweeninputs andoutputs ofan industry

Contextualissues thatsurroundan industry

Processesandstructureswithin anindustry

Phenomenon of interest

The structure of themarket: the product,the firms supplying theproduct, the buyers,and the transactions

Legal and institutionalarrangements: theregulatory frameworkgoverning an industry;organisations thatregulate and constraininteractions

Social relationshipsand networks, beliefs,norms and values

Types of data

Economic datasuch as costs,profits, numbersof transactions

Legal documents,laws, courtdecisions,interviews withkey informants

Notes fromfieldwork andobservations,interview data,documents

Characteristics ofindustry transformation

A change in thestructure of the market

A change in theregulatory frameworkand/or legal andinstitutionalarrangements

A change in socialrelations, socialstructure, socialnetworks and culture

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to provide a comprehensive review of the researchin these areas. Also, we acknowledge that otherperspectives are possible and these perspectives arenot mutually exclusive. Bearing in mind theselimitations, however, we believe these threeperspectives (as we have described them) are a usefulstarting point for discussing an industry. Table 1shows that each perspective makes differentassumptions and focuses on a different aspect of anindustry.� The economic perspective views an industry as a

collection of firms that produce substitutableproducts. The key focus is on the structure ofmarkets and the relation between inputs andoutputs of an industry.

� The institutional perspective views an industryas a set of institutional and regulatoryarrangements. The key focus is on the contextualissues that surround an industry.

� The social and cultural perspective views anindustry as a set of social and culturalrelationships with shared norms, values andbeliefs. The key focus is on the social processesand social structures within an industry.

Economic perspective

An economic perspective treats the actors withinan industry as rational profit-maximising entitiesand focuses on the relative costs and benefits ofdifferent actions or arrangements. In thisperspective, an industry is generally defined as theset of firms that compete with each other. A narrowdefinition would restrict the industry to firms thatsupply the same product (e.g., the movie industry,which is the collection of firms that producemovies); a broad definition would include firms thatproduce substitutable goods (e.g., the entertainmentindustry, which includes firms that produce movies,television shows, computer games, and run themeparks, etc.). For our purposes, we suggest the

economic perspective would consider the real estateindustry as a service industry, where the “market”is one where houses are bought and sold. Variousplayers compete within this market (of matchingbuyers and sellers).

The use of information technology may havevarious economic impacts on an industry. First, theuse of IT can reduce the cost of searching for aproduct and thus change the set of suppliersconsidered by a buyer. One phenomenon that hasattracted particular attention is disintermediation:this is the idea that buyers and sellers will deal witheach other directly, rather than throughintermediaries, as the use of IT makes interactionscheaper, allowing buyers and sellers to handle awider range of interactions. Some predict that thewidespread adoption of electronic commerce willlead to the disappearance of all human agents whoact “merely” as match-makers – helping buyers findsellers and vice versa (Bakos, 1998; Doherty, 2000;Hess and Kemerer, 1994; Schmitz, 2000). Others,however, disagree with this prediction. Wimmer etal. (2000), for example, note that middlemen domore than simply match buyers and sellers: theyalso provide immediacy, access to wider markets,and expert analysis that alleviates problems ofasymmetric information. While they agree that somemiddlemen may be replaced by IT, those whoprovide more than just matchmaking services seemlikely to survive (Wimmer et al., 2000). Yet anotherpossibility is re-intermediation, where a newintermediary arises to connect buyers and sellers.Retailers such as Amazon.com and Virtual Vineyardsare examples of new “cybermediaries” (Jin andRobey, 1999).

Predictions of disintermediation seem to be borneout in certain industries (Hess and Kemerer, 1994).For example, conventional travel agencies arestruggling to survive the double blow of airlinecommission cuts and online competition (Lewis,

�

One phenomenon that has attracted particular attention is

disintermediation: this is the idea that buyers and sellers will deal

with each other directly, rather than through intermediaries

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Semeijn and Talalayevsky, 1998; Lewis andTalalayevsky, 1997). Insurance firms are alsostruggling with the role of agents as intermediariesin the insurance sales process (Fisher, 2000). Butnew “cybermediaries” are also emerging, often inthese same industries. Travelocity and Expediacompete with conventional travel agencies, allowingcustomers to make their own travel reservationsonline. It appears, therefore, that bothdisintermediation and re-intermediation areoccurring simultaneously in some industries.

Second, IT use can change the competitiveposition of buyers and suppliers (McFarlan, 1984;Porter and Millar, 1985). For example, a companythat successfully employs IT to cut costs or toincrease service levels may be able to out-competetraditional competitors. These changes can beconsidered changes to the industry when they leadto changes to the set of suppliers for the product.

Third, IT can reduce transaction costs and mayhave some impact on the boundaries of the firm(Williamson, 1975; 1981). Transaction cost theory(which extends the neoclassical economic perspectiveof the firm by recognising the significance oftransaction costs in any market exchange) has beenused to help explain IT outsourcing decisions invarious industries (Ang and Straub, 1998).

Finally, IT can change the nature of the productitself (Venkatraman, 1991). In some cases,information becomes an important part of the goodor service. In other cases, the product itself becomesdigital (e.g., music CDs, digital videos, onlinejournals). Such changes to the nature of the productcan lead to changes in the basis of competitionamong firms and changes in industry structure.

Institutional perspective

A second perspective that may be used to analyseindustries is an institutional one. An institution canbe defined as any standing legal entity that exertsinfluence and regulation over other social entities.Institutions constrain and regularise behaviour and“have the capacity to establish rules, inspect orreview others’ conformity to them, and as necessary,manipulate sanctions – rewards or punishments –

in an attempt to influence future behaviour” (Scott,1995). Examples of institutions are governmentagencies, international agencies, professional andtrade and industry associations, educationalinstitutions, financial institutions and labourorganisations (King et al., 1994).

An institutional perspective looks at an industryas a set of institutional arrangements that governthe production and exchange of certain goods. Thefocus is on institutions, on the regulatory frameworkgoverning an industry and on the rights andresponsibilities of participants within it. Theinstitutional perspective can also include factors thatpressure organisations to conform in order tomaintain legitimacy (Robey and Boudreau, 1999).

In this perspective, an industry is defined morebroadly than in the economic perspective. It includesthose firms that compete to supply a given set ofproducts, but it also includes the regulatoryframework that specifies the allowable competition.Many industries are heavily regulated, especially thosethat may impact on public safety or the environment(e.g., transportation, utilities and food).

Changes to the regulatory framework of anindustry can have far-reaching implications forevery single organisation within an industry.Changes to the law or the enforcement of existinglaw may also significantly affect IT use (e.g., acompany called Napster was, in effect, shut downas a result of court action by the Recording IndustryAssociation of America).

As well as a regulatory framework, most industrieshave national trade and professional associations.These associations usually collect industry data,publish consumer information and trade andindustry magazines, hold trade fairs, represent themembers of that association to the public, thegovernment, the media and other interested parties,and promulgate and enforce codes of conduct.

Social and cultural perspective

A third perspective that can be used to analyseindustries is a social and cultural one. A social andcultural perspective sees an industry as a set of social,organisational and cultural relationships. The focus

Changes to the regulatory framework of an

industry can have far-reaching implications for

every single organisation within an industry

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is on the patterns of interaction among people andorganisations within an industry, on shared languageand jargon, meanings, norms, beliefs and cognitiveframes (Scott, 1995). Researchers might studyclassification schemes about products, processes andcustomers, as well as the processes of enculturation,education or training that shape these characteristics.

In this perspective, an industry is defined morebroadly than in the institutional perspective. Itincludes the various institutional relationships withinan industry, but it also includes the socialrelationships and networks between the variouspeople and organisations within it. An industry isthe set of firms and organisations whosestakeholders share cultural characteristics andconsider themselves to be in the same industry. Anindustry is thus a socially defined community ofdiscourse with accepted norms, beliefs and values.

Within an industry are accepted norms formanufacturing or product design, accepted ideas ofwhat a product is and what it should look like, andwho should do the work (Keller, 1983). Theexistence of such a culture can be seen in the easewith which people move from one firm to anotherwithin the same industry (Phillips, 1994).

We suggest that, as technology changes, thepatterns of social interaction and culture within anindustry may also change in systematic ways. IT usemay lead to industry transformation by changingits social and cultural characteristics. For example,an information system may have a classificationsystem embedded within it and, therefore, users maybe forced to adopt the language of the system. Suchwas the case with the Norwegian drug prescriptionexchange described by Monteiro and Hanseth(1995). A system may similarly reflect and impose

particular sets of values, norms and behaviour, allof which affect the constitution of the industry(Hanseth and Monteiro, 1997).

TRANSFORMATION OF REALESTATE INDUSTRY BYINFORMATION TECHNOLOGY

ach of the three perspectives offers particularinsights about how the real estate industry might

be transformed by IT. Table 2 summarises thephenomena of interest in this industry from eachperspective.

Economic perspective

The economic perspective focuses on theeconomic performance of an industry (outputs) andon the structure of the market – the product, thefirms supplying the product, the buyers and thetransactions – and how these might change withthe introduction or increased use of IT. The realestate industry is interesting from an economicperspective because houses are expensive and havehigh transaction costs. Much of the research onelectronic commerce has focused at the other endof the spectrum, on low-cost, easily describablecommodity or branded goods, such as music CDs.There are several reasons for the high transactioncosts. First, houses differ widely along numerousdimensions (e.g., size, location, features), whichmakes them hard to describe succinctly and increasestheir asset specificity. Second, real estate transactionsare complex, with somewhat high uncertainty anddifficulty in measuring outcomes. Finally,transactions are characterised by high informationasymmetry, since sellers typically know much moreabout their houses than buyers. All of these factorsincrease the perceived risk and cost of the

�

TABLE 2

Analysis of real estate industry from three perspectivesPerspective

ECONOMIC

INSTITUTIONAL

SOCIAL AND CULTURAL

Phenomenon of interest

IT-induced reduction in cost of locating properties; disintermediation of realestate agents and increase in FSBOs; development of cyber-intermediaries

The use of IT as allowed or mandated by the regulatory environment; the roleof MLS and MLS agreements between agents in transactions; rules for beinglisted on real estate websites; institutional support (or lack thereof) for FSBOreal estate sites

Role of agents in contextualising information from databases; use of IT tosupport social networks of agents, customers and other professionals; ITsupport for representation schemes

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transaction. An interesting feature of the real estateindustry is that a large proportion of sales are of“used” products rather than new. These sales ofexisting homes take place between individuals(consumer-to-consumer), unlike new goods, whichare sold by companies (business-to-consumer).However, individuals who buy or sell real estateinfrequently have little incentive or opportunity todevelop much expertise in the process.

The high transaction cost and consumer-to-consumer characteristics of the real estate industryincrease the importance of real estate agents asintermediaries. Intermediaries, traders or match-makers are essential players in the economy in thatthey create desirable efficiencies and provide expertiseto reduce the problems of asymmetric information(Wimmer et al., 2000). Economists have long arguedfor the importance and theoretical justification forintermediaries (Wigand, 1997; 2001).

One view of the role of real estate agents is thatthey help reduce the transaction cost for anindividual buyer. For example, an agent can reducecontact cost by use of a listing service (discussedbelow), reduce contracting cost by providingstandardised contracts, monitor performance andso on. Agents might also address some of thetransaction attributes, e.g., by providing specialisedknowledge to help buyers more quickly determineif a house is appropriate (thus managing assetspecificity) and by providing transaction support(thus managing transaction complexity andinformation asymmetry). Clearly, transaction costscannot be entirely avoided, since agents must bepaid, but the cost of the agent could be less than thetransaction costs borne by a buyer who does notuse an agent (Schmitz, 2000; Wimmer et al., 2000).Finally, for most buyers and sellers, agents are seenas necessary insurance against the risk of atransaction gone bad.

Despite the potential advantages of humanintermediaries, many professions, trades andindustries are facing the potential ofdisintermediation, since IT can often provide similarservices at a reduced cost. For example, the use of

IT might reduce search costs to the point where ahuman intermediary is unable to compete. IT mightalso be used to provide information about theprocess of a sale, thus reducing the perceived risk.Since real estate agents and real estate firms are puremarket intermediaries – they match buyers andsellers, but rarely buy or sell themselves – they arepotentially vulnerable if buyers can find sellersdirectly. For example, buyers and sellers can nowuse the internet to list and search for housesthemselves, bypassing traditional real estate agents,who used to have a monopoly on providinginformation about listings. eBay, whichrevolutionised consumer-to-consumer sales byenabling individual buyers and seller to easily findeach other, now allows real estate listings. If thevalue added by agents is merely a source ofinformation about listings or reassurance about theprocess, their position is vulnerable and they maybecome victims of disintermediation.

Indirect and circumstantial evidence shows thatthese developments have indeed had an impact onthis profession. Several studies, including researchby the National Association of Realtors, found that60 per cent of all housing purchases in the US starton the internet. While brokers still control four outof five real estate transactions, the number of homessold directly by their owners (“for sale by owner”or FSBO sales) has increased in recent years (Fletcherand Wright, 1997). More than 3600 individualwebsites have been created in the US to sell homes,most newspaper advertisements now appear online,and FSBO listing registries have emerged (NationalAssociation of Realtors, 1998).

Real estate agents have begun to realise thedisruptive potential of the internet (Bottenberg,1998; Harper, 1997; Self, 1997). For agents, themajor challenge in these developments is to figureout a way to add sufficient value in the real estatetransaction such that they are able stay “in themiddle”. Some agents are adopting these newcommunications channels for their own use. Forexample, Lloyd Anderson, a Harcourts rural salesconsultant based in Gore, New Zealand, listed more

Since real estate agents are pure market intermediaries – they

match buyers and sellers, but rarely buy or sell themselves –

they are potentially vulnerable if buyers can find sellers directly

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than 70 of his properties on the internet (Real EstateInstitute of New Zealand, 1999). Anderson is citedin August, 1999, as having received more than 670inquiries from around the world on one propertyin two months, with the internet leading directly toa sale in excess of $NZ3 million (about $US1.6million). Other agents are stressing individual serviceand creating other value-adding mechanisms, suchas buyer-broker relationships, connections to otherhouse-buying services, buy/sell deals and guarantees.

In summary, an economic perspective focuses onchanges in the costs of various transactions due tofactors such as changes in access to information.Analysis from this perspective leads to the predictionof disintermediation as buyers and sellers seek tosave the agent costs. This shift would be reflectedin a growing proportion of homes sold by owners.

Institutional perspective

An institutional perspective on the real estateindustry focuses on legal and institutionalarrangements – the regulatory and contractualframework governing the industry and theorganisations that regulate and control interactions– and how these institutions shape and are shapedby the use of IT. To understand the industry fromthis perspective, it is necessary to understand thecurrent arrangements between buyers, sellers andagents, so we will first briefly describe a typical sale.To highlight the importance of the institutionalperspective, we will compare the practices in theUS and New Zealand.

Typically, a seller agrees to list a property with areal estate agent, called the listing or selling agent(as noted above, only a minority of sellers sell theirproperties without an agent). The agent advises theseller on the various decisions about selling the house(e.g., pricing) and markets the house to potentialbuyers (e.g., by placing advertisements, holding open

homes or putting a picture in the agency’s shopwindow). In return for these services, the agentcollects a commission when the house is sold (onthe order of five-seven per cent of the selling pricein the US, with wide variation by locale, price ofthe house, etc.). The relationship between the agentand the seller and buyer is governed by the contractthey sign, law, professional licensing standards andprofessional codes of ethics.

An essential institutional difference between NewZealand and the US is the use of a multiple listingservice (an MLS, also called a multiple listing bureau,or MLB) in the US. An MLS is a database of thehouses listed by member real estate agencies.Originally, the MLS was a printed book, but todayit is a computer database of listings that can besearched by member agents. In the US, nearly everyarea has an MLS to which essentially all agenciesbelong and agencies typically include all of theirlistings in the MLS (a significant exception is NewYork City, but even there one may soon bedeveloped). But the MLS is much more than justtechnology. An MLS, strongly influenced by the legalframeworks and professional codes of conduct ineach country, contains encoded rules of conduct androle definitions for the industry, and thus influencespractice. In particular, the MLS agreement in theUS provides a framework for limited co-operationamong agents. For example, the MLS agreementgenerally allows member agents to show houseslisted by other agents (using a lockbox to access thehouse when the sellers are away) and requires sellingagents to share their commission with any agentwho brings in a buyer (and not with any non-agent).As a result, it is common in the US for a house listedby one agent to be sold by a different agent workingfor a different agency, and for an agent to showhouses listed by other agencies. Even though agentsrepresent opposite sides of the transaction, the MLS

�

It is common in the US for a house listed by one agent to be

sold by a different agent working for a different agency, and

for an agent to show houses listed by other agencies

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agreement ensures that both are paid by the seller.

The use of the MLS in the US gives agents aconsiderable information advantage. On the buyers’side, the availability of information in the MLSmakes it much easier for an agent to identifydesirable properties, thus encouraging buyers towork with agents. (Since the seller pays the agent’scommission, there is no direct cost to the buyer forworking with an agent.) Historically, this controlover listing information was jealously guarded. Onthe seller’s side, houses that are not listed with anagent are kept out of the MLS, which dramaticallyreduces the number and quality of prospectivebuyers (since most buyers work with an agent).Indeed, in some locales, agents have been able tohave ordinances passed banning “For Sale” signs,thus increasing the value of the MLS. Because ofthe importance of the MLS, agents market primarilyto each other and secondarily to the general public(in fact, some of the US agents interviewed felt thatopen houses for the public were ineffective and awaste of time).

In New Zealand, MLBs existed in Auckland andChristchurch, but these recently closed (as discussedbelow). Even when they were in operation, only afraction of the agents in these two cities belongedand even those who did belong did not list all theirproperties. The lack of success of both these MLBscan be explained by the institutional arrangementsin this country. New Zealand has about half a dozenlarge real estate firms and these firms competefiercely with one another. Agents who work for aparticular firm generally do not co-operate withagents in other firms because there is no institutionalstructure comparable to the US MLS agreement thatencourages them to do so.

Working within an institutional framework thatencourages competition and discourages co-operation, it is not normal practice for agents toco-operate or share their commission with agentsin other firms. Agents show only their own firm’sproperties, so buyers must check with each agencyin an area to be sure of seeing all offered properties.Agents try to convince sellers to list with their own

firm only (called an “exclusive listing”) and activelydiscourage sellers from listing with multiple agencies(e.g., by offering less support to such listings). Oncethey have captured an exclusive listing, agencies thenfocus their efforts on advertising directly to potentialbuyers, perhaps to compensate for the potentialreduction in the number of buyers caused by theabsence of shared listings. Agencies have large shopwindows with displays of houses for sale. Most buylarge amounts of advertising and the largest firmsproduce their own glossy advertising magazines. Forsale signs are large (two metres by two metres is notuncommon) and provide a large amount ofinformation about the property offered. NewZealand real estate agents hold many more openhomes than is typical in the US (at least once a weekfor several weeks, rather than one or two). Thisapproach may mean more work (i.e., economicallyless efficient) for buyers, but persists because of theinstitutional support.

The difference in institutional context has alsoaffected the impact of the agents’ use of theworldwide web. In the US, real estate agents’websites are often a presentation of their MLSlistings, as is the national site – www.realtor.com –run by the National Association of Realtors (NAR).In New Zealand, the national website developed bythe Real Estate Institute of New Zealand (REINZ)– www.realenz.co.nz – allows a buyer to comparelistings across multiple real estate agents. But theonly way to get a listing on the website is to listwith an agent and the only way to buy a listedproperty is to deal with the agent. Thus, as mightbe expected, the REINZ website does not affect thebasic relationship between agents, sellers and buyers.The respective websites thus seem to reinforce theexisting institutional arrangements rather thanchange them.

The position of agents could be threatened bythe emergence of competitive FSBO listing sites. Aswith eBay, such sites could allow buyers and sellersto find each other directly rather than having toemploy an agent (of course, they would have to alsotake on the other functions performed by agents).

The position of agents could be threatened by the emergence

of competitive FSBO listing sites. As with eBay, such sites

could allow buyers and sellers to find each other directly

9

Although such sites are numerous, none seems tohave the critical mass needed to be successful.Indeed, many have folded. From an institutionalperspective, a critical difference is that the real estateagent sites can piggyback on the existinginfrastructure for listings and advertising. Incontrast, the FSBO world has no central player.Most sellers are selling only a single house and havelittle chance to develop expertise or economies ofscale in the process. Furthermore, the NAR andREINZ encourage agents to avoid real estate sitesthat mix listed and FSBO properties, thus limitingcompetitive sites to only FSBO advertisements,further decreasing their appeal.

A question raised by this analysis is why someother established organisation does not take aleading role in organising the FSBO market. Forexample, newspapers run ads from both real estateagents and individuals in their local markets andmany have made their advertisements available ontheir websites. One hypothesis for this behaviour isthat newspapers derive more revenue from realestate agents, who are regular customers, than theydo from individuals and so are reluctant to becomeactive competitors. Over the past year, however,TradeMe New Zealand has started online auctionsfor cars. It may be just a matter of time beforeTradeMe or some other non-real estate companytakes a leading role in organising the FSBO marketfor real estate.

In summary, the institutional perspectiveemphasises the importance of the regulatoryenvironment and institutional arrangements inshaping the use of technology. This perspectivehelps to explain the differences in how IT is beingused in New Zealand and the US. In the US, it is inthe agents’ interest to use the MLS; in New Zealand,it is not. What is rational in one country is not soin another. We can see, therefore, that the

institutional perspective helps us to understandmore fully how IT can transform an industry andhow that industry uses IT.

Social and cultural perspective

A social and cultural perspective looks at thesocial structure and culture of the real estate industryin a region, state or country. This social structureand culture influences what agents, buyers, sellersand other parties believe about their industry (theirnorms and values) and how it should operate (theirpractice). This perspective leads to an examinationof agents’ social networks along with a study ofshared industry language and jargon, meanings,norms, beliefs, cognitive frames and classificationschemes about products, processes and customers,as well as the processes of enculturation, educationor training that shape these characteristics.

From a social and cultural perspective, the use ofIT leads to the increased availability of informationabout properties to all the parties, but much of thisinformation is “de-contextualised”, meaning that itmay not be clear how it applies to a particularsituation or circumstance. Real estate agents oftenhave stories to tell about the local neighbourhood,about the relative merits of schools in the area, thelocal shopping centres and so forth. While the basicdata is usually available from various sources, buyersmay need help interpreting and putting the data intocontext. In this way, the social network, andespecially the strong local ties, represent the addedvalue that the agent provides during the sale process.Additional sources of de-contextualised information,such as listings, FAQs, etc., may not reduce theperception of risk for customers who have littleexperience with the complexities of real estate.Rather, these individuals need access to embodiedexpertise and other resources.

From this perspective, the primary value that an

�

It may be just a matter of time before TradeMe or

some other non-real estate company takes a leading

role in organising the FSBO market for real estate

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agent provides to a customer continues to be accessto the agent’s established social network of value-adding players. Expertise is much more importantthan simple listings data and much harder to replacewith technology. For example, since most buyers needlegal advice on the transaction, real estate agents oftenseek out and form strong relationships with lawyerswho will help their clients (and vice versa: lawyersseek to develop relationships with agents who willbring them business). These relationships certainlyhave an economic aspect, but the economictransactions are built on social relationships of trustand reciprocity. A listing of lawyers in the phonebook or an online equivalent is not a replacementfor a recommendation from an agent or a friend.The agent provides a certain comfort level that thetransaction will be completed satisfactorily.

A social perspective suggests that the increaseduse of IT by real estate agents may enable them toextend their social networks and thus increase theirsocial capital (Kraut, Rice, Cool and Fish, 1998;Kraut et al., 1998). Increased connectivity (viacellular phones, pagers and email) allows a real estateagent to more easily maintain contact with themembers of his or her social network. The increasinguse of certain technologies also makes it easier forpotential customers to contact the agent. And, aswe mentioned earlier, an internet presence canextend the agent’s reach. Contemporary “web-savvy” agents often have their listings on personalwebsites, organisational websites (such as localfranchise sites), co-operative sites (such aswww.homehunter.com) and the NationalAssociation of Realtors’ website.

Another focus of this perspective is on the useof language and cognitive schemes by individualsin the industry. The real estate industry uses aspecific representation scheme to describeproperties. These schemes capture and representthe characteristics of houses important to buyers,such as the number of rooms, constructionmaterials, special features, etc. These schemes areembodied in and, therefore, affected by theintroduction of a system such as an MLS. Thetechnology can lead to changes in several ways.

First, when an MLS is introduced, it is necessaryto standardise the descriptions of properties.Technological limitations may require pruning ofdescriptions. In order to provide search facilities,systems impose a standard format and selection offields. Standards can differ among regions, reflectingthe diverse needs of these areas. As MLS systemsmove on to the web, though, two additional changesbecome necessary. First, because the web versionsof the systems are open to the general public, thepresentation of the information has to change.Professionals who use a system every day can beexpected to learn abbreviations, labellingconventions, etc., but an occasional user requires amore explicit presentation. More importantly,though, to integrate separate MLS systems into aseamless web presence, it is also necessary tointegrate the representation schemes they embody.

CONCLUSION

ach of the three perspectives offers a differentview of the relationship between the real estate

industry and IT. Bearing in mind the provisos wemade earlier, the economic perspective suggests thatthe increasing use of IT will lead to thedisintermediation of real estate agents or that at leastthere will be some consolidation within the industry.The institutional perspective suggests that real estateagents may be able to put their institutionaladvantages to good use, but the use of IT in the realestate industry will vary considerably by countryand or region. The social and cultural perspectivesuggests that IT may lead to an increase in the socialcapital of agents.

There are thus three potential scenarios for thetransformation of the real estate industry byinformation technology. Although we are notadvocates of technological determinism – thattechnology is the primary driver for industry changes(Orlikowski, 1992) – we do think that somescenarios are more likely than others. We suggestthat the real estate industry is most likely to betransformed as follows:� Many real estate agents will find it hard to

survive and some may well be subject to

E

The economic perspective suggests that the increasing use of

IT will lead to the disintermediation of real estate agents or that

at least there will be some consolidation within the industry

11

disintermediation. Most likely there will be someconsolidation within the industry (Scenario 1).

� In some countries and regions, agents may beable to succeed by using their institutionaladvantages, e.g., by excluding FSBO sales fromany agent-controlled system (Scenario 2).However, there seems to be nothing to stop anindependent company from setting up acompetitive site for FSBO sales in New Zealand.

� A few real estate agents and firms will succeed inusing information and communicationstechnology to their own advantage (Scenario 3).

Although it is always dangerous to predict thefuture, we suggest that the future for the real estateindustry in New Zealand is some combination ofScenarios 1 and 3. That is, we believe there is likelyto be some consolidation within the industry. Manyreal estate agents and firms may find it harder tosurvive and some agents may lose their jobs and besubject to disintermediation (particularly if a newindependent intermediary such as a TradeMe oreBay enters the market). However, a smaller numberof real estate agents will use ICT to handle evenmore customers. They will succeed by usinginformation and communications technology totheir own advantage.

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ACKNOWLEDGEMENT

This research was partially supported by the United StatesNational Science Foundation, Grants IIS-9732799 and IIS-0000178. Any opinions, findings and conclusions orrecommendations expressed in this material are those ofthe authors and do not necessarily reflect the views of theNational Science Foundation.

Michael D. MyersPROFESSOR OF INFORMATION SYSTEMS

University of Auckland Business School

Email: m.myers@auckland.ac.nz

Kevin CrowstonASSOCIATE PROFESSOR

Syracuse University

New York, US

Email: crowston@syr.edu

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FURTHER READING

An excellent introduction to the topic of how IT canfundamentally and radically reshape organisations and entireindustries is the article by Evans and Wurster (1997). Theemergence of electronic marketplaces on the internet isdiscussed by Bakos (1998). A more detailed discussion of thethree theoretical perspectives and their relevance for the realestate industry can be found in Crowston and Myers (2004).