A colleague just had twins and is looking for a larger home. He wondered aloud “Where is Silicon Valley in the real estate world?” For those buying or selling a house, the impact of technology may not be especially visible.
But it is there. You just have to squint a bit to see it. Extrapolate the trend a decade out into the future, and the impact will become much more obvious.
Why has the housing market been so resistant to change? There are a few factors that buttress the status quo:
• Real estate is local; knowing the neighborhood has value;
• The broker has a monopoly on listing information through the Multiple Listing Service;
• Information asymmetry: people don't understand their options and what they can and can't do;
• Complexity of mortgages, contracts, closings, makes buyers and sellers comfortable working with an agent, even if it is expensive.
Not only is real estate local, but the U.S. market is very different from other parts of the world. Fixed-rate mortgages are almost universal here, thanks to government intervention in the market, but rare elsewhere. Home mortgage interest-tax deduction is a cherished part of the U.S. tax code. And the standard 6 percent commission for real estate brokers in the U.S. is much higher than elsewhere in the world. In short, the U.S. market is highly inefficient.
Real estate is ripe for disruption. In fact, the process has already begun. Consider the following:
No. 1. Pressure on commissions: This has been an issue for decades. A New York Times article from 2005 “The 6 Percent Solution: Skip Real Estate Agents” references a variety of flat-fee and discount real-estate brokers. That has only accelerated in the ensuing years.