In the future, real estate transactions will occur electronically over the Internet - or over whatever superior technology mutates from the Internet. Will it happen overnight? No. Will it happen in the next 12 to 18 months? Probably not, but it will happen. It's inevitable.
Recent trends suggest that it is already happening, albeit in a relatively basic and elementary form. General laws of business suggest that a stronger, more efficient method of doing business will evolve. Microsoft's Bill Gates said that companies tend to "overestimate the impact of technology in the short run, and underestimate it's long-term implications."
Emerging technological trends For every product, service or technology that is produced, there is a set of principle phases that govern the life expectancy of the product: introduction, growth, maturity and decline. For simplicity's sake, we've omitted a discussion of the maturity and decline phases. With the rapid change in technology, it is important to understand the product life cycle in order to devise an appropriate strategy. Real estate technology appears to be following a similar pattern.
All products have a finite life expectancy. To better understand this concept, consider the life cycles of the railroad, telephone and steel industries. Each new technology revolutionized transportation, communication and manufacturing, respectively, and significantly affected the world. Technology, however, has sped up this process exponentially. The graphic to the right illustrates that point.
Introduction phase In the simplest terms, a product's life cycle begins at product introduction and continues until the product becomes obsolete. The introduction phase for real estate Internet technology began in 1994 when New York City Real Estate Web opened its doors for business. By the end of 1995, there were close to 4,000 real estate Websites. This phase appears to be ending.
Growth phase There are clear indications that the real estate technology industry is now in the growth phase. These indications include CoStar Group's recent acquisition of Comps.com, Real Bid, Datapoint and Atlanta-based Jamison. CoStar also recently announced the rollout of CoStar Exchange, the company's attempt to be the premier online multiple listing service.
Consolidation often is necessary in order to reach critical mass and gain economies of scale needed to propel an industry into the mainstream.
Author Geoffrey Moore's "Technology Adoption Curve" is a useful tool in the analysis of new technology. Typically, innovators are motivated by high technology, according to Moore. These are the techies who envision where the industry may go.
Next are the early adopters; their motivation is to gain a dramatic competitive advantage through revolutionary technology. The belief is that by adopting technology early enough, the Early Adopters may influence the future development and strategic direction of the technology.
Next in the adoption curve is the early majority, whose motivation is productivity. These are the masses. Later comes the late majority, whose motivation is conformity. Lastly are the laggards, whose motivation is compliance.
In Moore's book, Crossing the Chasm, he writes, "At this stage of growth, for the market to take off, either a single vendor has to control enough of the market to convince the market it is a de facto standard, or the market must consolidate around a single, open architecture standard." Moore continues, "As a broadly available de facto standard, Intranet-oriented technologies offer companies the potential of integrating their mission-critical imaging and document management applications into a whole product that is made complete by all of the other applications that fit naturally into this same infrastructure."
Keys to success In order for our industry to thrive under Internet technology, certain promises must come to fruition. The technology for these advances already exists. The keys to success are standardization of documentation, automated processes, de facto standard data models and online, real-time document management.
Standardization of documentation Recent advances in online document management suggest that the Internet eventually enables a paperless - or near-paperless - transaction. While it may be unlikely that we will witness an entirely paperless transaction in the short term, the potential cost savings of copying and storage are huge.
Augmenting the paperless, or near-paperless, transaction will be significant momentum toward standardization. Data fields, template formats, models and key documents will be uniform across the industry. Data content rather than the documents themselves will be the key requirement for rapid and efficient execution.
Automated processes The Internet promotes networks of affiliation. Groups with similar concerns and goals, whether social, political or economic, are building portals through which information is shared and objectives are moved forward.
As real estate portals gain momentum, they will become increasingly sticky, offering appraisals, architectural services, title insurance and a multitude of other services that will facilitate and expedite transactions. Consistent with Moore's "whole product" model, companies will form partnerships, strategic alliances or horizontal market integration to provide a full-service package or killer application.
De facto standard data models Everyone's database will eventually have to talk to each other. One of the biggest hindrances to our industry is an inconsistent data model. There are no standards. Financial analysis software from ARGUS doesn't talk to Pro-Ject software, for example. Companies have spent fortunes building inefficient interfaces, only to abandon them shortly after completion because the technology has changed.
Online real-time document management Companies that specialize in e-media solutions, such as National Media Technologies, already recognize the need for efficient online document management. Companies such as IPIX offer the ability to take an online 3-D virtual tour of a property.
As we witness the progress of application service providers (ASPs), we should begin to see the facilitation of online transactions. Think of a virtual war room. Through a real estate portal, a document management company will offer the ability to store, search and index all of a property's leases, financial information, environmental and engineering reports, and all documentation related to a typical transaction.
A user could perform a large majority of due diligence online as well as contract for an appraisal, shop for title insurance and track the entire process through a project management program. Transaction times could be cut down to days instead of months.
Run-time financial analysis packages could allow for collaborative discounted cash flow and "what-if" analysis to be performed online. The possibilities are endless.
The road ahead The question now is how will these emerging technologies affect the way we do business in the future? While there's certainly the promise of creating a more efficient real estate marketplace, there's also a real threat to many of our existing business models.
While there's been a great deal of discussion about disintermediation of the brokerage community, it's doubtful that there will be a total elimination of the broker. We should expect to see the evolution of a new value-added role. Information is becoming a commodity - interpretation is not. Brokers will shift from a transaction-related capacity into more of a consultative or strategic advisory role.
Real estate is still a people business. It is our nature to crave personal interaction. While technology may level the playing field, superior customer service, proprietary analytical tools and methods and strategic-level planning abilities will determine who succeeds.
As we move toward e-transactions, early adoption of technology will be essential in gaining a competitive advantage. Qualified professionals who can accurately interpret the information and professionally convey it in an intelligent manner will be equally as important. Proprietary databases that once offered a competitive advantage may actually serve as a hindrance if not integrated into the mainstream.
Information wants to be free. Those companies that accept this principle, plan for it and devise a strategy to capitalize on the advantages early enough in its life cycle will thrive in the new age.
Remember how everyone said that the VCR would eliminate the need for movie theaters? It didn't happen because we are social creatures.
It is generally accepted that there are significant cost benefits to adopting a technology before it becomes a standard rather than playing catch-up to an inflexible architecture.
Moore defines this as the "whole product concept."
"There is a gap between the marketing promise made to the customer - the compelling value proposition - and the ability of the shipped product to fulfill that promise," states Moore. "For that gap to be overcome, the product must be augmented by a variety of services and ancillary products to become the whole product."