I used to work for an investment bank in The City (London’s Wall Street though legally distinct from London). I learned that price transparency and price discovery are good for business. When the buyers and the sellers feel there is little that is unknown concerning the value or pricing for an asset they are more comfortable moving forward. Transaction volume goes up. More deals get done. A buyer can strike a deal without a long dance to determine just what the other party will accept in terms of price or specific contract terms. A seller will have a better sense of what they can sell for if they needed to exit their position. Both sides can better manage the risk associated with being long or short a specific position.
For real estate investors the opposite might be true.
Savvy investors like markets that do not have great liquidity and transparency as margins are better. This is even more true when the investor is not expecting to hold long term. Investing in real estate is mostly about buying below current market value using better deal making skills and superior ability to identify bargains. You make your profit when you buy, you get the cash when you refinance or sell.
As this post if about technology and real estate we will ignore the real estate investor’s perspective for a minute. Lets compare the UK and the US residential real estate sales process.
In the UK, pre-Internet, there was no useful way to survey what was being offered to the market. Brokers do not share commissions so to find out what each office had on its books (active listings) you needed to actually speak with each office. Potential buyers and potential sellers had no easy way to see which way the wind was blowing. You have difficulties when relocating as it is not easy to fly into a new location, speak with one agent who has all the data and then confidently shop knowing that what you are seeing is the full market narrowed down to reflect your preferences (i.e., bedrooms, school catchment area, price range). You could pay a buyer’s representative who would do the work for you but they were pretty rare in most areas. Estate agents generally do not work with buyers unless the buyer is interested in a property listed with their agency. Even then to view a property generally means having the seller show their house to the potential buyer. Some of the time the agent shows the property but most of the time this is not the case. Definitely no lock boxes.
The Internet has shifted the initial search closer to how the US market behaves given the Realtor MLS system in the US. Now a buyer can find out what is on the market. They at least believe they can see all the inventory that is on the market as no reasonable estate agent in the UK is going to not list their property on the Internet. The buyer is doing the work but that does not matter when it comes to discovering what is on the market.
In many ways the Internet lets the estate agent find out what the market is doing as they never had access to the full market of all homes for sale. Think about how hard it must have been to market a property when you did not even know what was out there each day.
Note: It was not required to record closed sales in the public record until a few years ago. Price discovery was very painful compared to a more public and open process.
Looking to the future?
What else will technology bring? Can we anticipate the changes and somehow respond? Are there opportunities to make money from the change or will we only be fighting to not be left behind?
One site that I have started to follow is Transparent RE.com. Their mission statement says:
It’s our mission to provide a bird’s eye view on how the new transparency will change the real estate game for the benefit of society. We focus on business strategy, new business models, technology and innovative real estate marketing for the real estate community.
Maybe a bit bias towards the US agent’s/broker’s perspective. Then again knowing how the primary service industry for US RE investors is changing is important. Take a look.
If you know of other blogs that seem to be focused on the way technology is assisting or driving change in the property/real estate market offer a comment with a reference.
Tangent – UK and US terms and details: In case it is not clear, estate agent is the UK term for what the US calls a real estate agent or real estate broker. The UK estate agents (EA) are not licensed. In the extreme you just declare yourself an estate agent and off you go. Many are on fixed salary or a bonus scheme so not quite the same compensation model as US agents. EA’s are certainly not rewarded to work with buyers for the most part. A big element of the UK compensation is a company car. UK commissions are 2.00% of less when a seller lists a house for sale.
For UK property sales there is one place where the title work is recorded these days. That is the Land Registry. At this time it appears to the Land Registry that they have all property in urban areas covered but are still not able to produce details on about 50% of the rural properties. Fewer changes of ownership so still large gaps. I believe it was only 5 years ago that recording a transfer of title was made mandatory.