"It wasn't efficient the other way, where real estate professionals relied on word-of-mouth."
| Introduction
The Internet is changing the way commercial real estate is bought and sold. While previously it tended to be a hit-or-miss prospect, in today's market, buyers and sellers are finding it much easier to find one another. The Internet provided a network that could be accessed from any platform and allowed for the creation of a national system of commercial real estate listings. Because the Internet has such low barriers of entry, new entrants to the real estate industry have established new business models using the Internet and posed a serious threat to the incumbent real estate companies. These new entrants presented themselves as infomediaries that empower brokers and agents to do their jobs more effectively. As a result, the ability of the brokers and agents to access a critical mass of information should speed up the real estate transaction process and reduce the distribution costs. |
| Classification
The electronic intermediaries in the commercial real estate market are vertical hubs that seek to create a critical mass of buyers and sellers, match buyers with sellers, and improve the efficiency in the search process. They create value by reducing search costs, standardizing information, providing one-step shopping, and improving economies of scale. |
| New Business Models
Many new business models have emerged as a result of the Internet.
Three new business models are associated with the electronic intermediaries
of the commercial real estate industry.
Value Chain Integrators Examples of value chain integrators are: Propertyfirst.com Online Auctions |
| Benefits and Marketing
The electronic intermediaries of commercial real estate target mainly real estate brokers and agents that act on behalf of their clients. The intermediaries market their web sites to buyers and sellers through Internet portals, advertising on real estate organizations' sites, advertising in newspapers, and word-of-mouth. In serving buyers, the intermediaries provide a critical mass of nationwide listings to search from. Buyers or buyers' agents search for properties according to features such as property type, square footage, property location, and price. They obtain detailed information on interested properties such as descriptions, photographs, floor plans, site plans, aerial photos, financial information, tenant information, lease information, and operating data. With these electronic intermediaries, buyers and/or agents are able to search a large selection of properties in a short time and pre-qualify properties without actually visiting the sites. In addition, sites such as LoopNet offer one-stop shopping service that allows buyers to initiate loan process, obtain demographic and economic information in the property area, and access other services via links. Further, the transparency of information online facilitates the price comparison process and improves the negotiation process. In serving sellers, the intermediaries offer a maximum exposure of the property through the online listing. With the Internet, potential buyers from all over the world have access to the property information. This is in contrast to the traditional buying and selling process, in which a seller's property is only exposed to a small number of viewers. In addition, some intermediaries enhance the selling process by offering marketing services for the properties, such as customizing web pages for the properties, and providing virtual tours of the property. Effectively, the electronic intermediaries help speed up the real estate transaction process. The online transaction process is much faster than the traditional process because buyers/agents have detailed information on each of the properties that allow them to make selections faster. In addition, contacts between buyer's agent and seller's agent are made through email, which further speed up the closing process. The electronic intermediaries also create a community of brokers and agents that did not exist before. Brokers and agents from all over the world could network with one another due to the listings and share information with each other. A critical mass of listing creates a critical mass of real estate agents and brokers. |
| Overcoming e-Intermediary Obstacles
Real estate properties are thinking and feeling products. Buyers normally search through the property features to identify properties that fit their needs. Additionally, buyers need to visit the properties in order to get a feel on the properties. The electronic intermediaries solve the asset specificity problem by providing specific data on the properties. Buyers have access to information such as square footage, leasing information, price, operating data, and many other parameters. To fulfill the need for visual inspection of the properties, electronic intermediaries often include property photographs, aerial photographs, even virtual tours of the properties along with the property description on the property web page. |
| Attaining critical mass
Electronic intermediaries, such as LoopNet, bring a critical mass of users by partnering with real estate organizations and advertise on their web sites. As most of the sites target real estate agents and brokers, partnering with real estate organizations increases the exposure to agents and brokers. However, some of the agents and brokers are not technology savvy and may not be on the Internet yet. This poses a problem for the electronic intermediaries in the commercial real estate industry because commercial real estate transactions are complicated processes that require attentions from real estate professionals. |
| Technologies
In terms of technology, electronic intermediaries use the Internet and Extranet technology to make proprietary information accessible to clients and suppliers. Suppliers such as mortgage lenders have access to the property information for the loan process. Communications between buyers and sellers or each other's agents are made through email. Most of the web sites include security measures, such as encryption, to protect proprietary information and handle credit card payments. Membership fees and listing fees are paid using credit cards. The electronic intermediaries do not handle property payments; they are merely match makers for real estate transactions. The closing process is conducted in the traditional way. |
| Internet Value Chain |
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| Clients |
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| Real Estate Professional |
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| Escrow Agent |
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| Title Company |
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| Appraiser |
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| Insurance Company |
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| Mortgage Company |
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| Inspector |
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| The Internet has provided additional value to the real estate transaction
process by allowing clients to search for properties on their own.
Also, the Internet has shortened the transaction cycle because real estate
professionals and clients spent less time searching for properties.
Jack Peckham, President of Peckham Boston Advisors stated: "In all, this deal took about 14 weeks. If we hadn't used cyberspace, a normal deal like this could take six months or more." |