In recent years, with the rise of the Internet, much has been made of the potential for an electronic-based real estate transaction platform, which will disintermediate the role of the human component from the real estate transaction, thereby reducing the cost of transacting real estate. Danielle Babb, author of the book “Commission At Risk”, ominously states, “The code has been cracked and companies are creating the systems that will allow buyers and sellers to exchange goods-homes-directly online (Babb, 2006).” This premise is based primarily upon anecdotal observations of other two-sided market industries in which the human component to the platform has been disintermediated due to information technology, rather than the systematic analysis of unique features the real estate brokerage industry, per se. Babb goes on to make the following pre-bust market observation: ” Many questions will be asked and answers discovered, including the impact of the Internet on the “bubble” that so many experts have been saying will burst-yet hasn’t in many areas” (Babb, 2006).

During the past ten, years when other two-sided market industries saw their middlemen disintermediated from their value chains as a result of information becoming widely available through the Internet and information technology, the real estate professional continued to remain relevant. Even during the recent boom market, during which it sometimes took less than 15 minutes to generate multiple offers on homes for sale and information about homes for sale was readily available on the Internet, the percentage of for-sale-by-owner (FSBO) transactions actually decreased from 20% in 1987 to 13% in 2005 (National Association of Realtors, 2005). This fact was not lost on agents who saw there per transaction commissions rise to a record of $11,672 in 2006 (US Department of Justice, 2006). In a sense, agents experienced no economic incentive to adopt technology in a meaningful way and attempts by third parties at developing Internet based real estate platforms failed to gain any meaningful traction. Despite the dire predictions of their impending demise, real estate agents proceeded as they always had; to many, information technology was nothing more than a paper tiger.

Source by Medo Eldin