impact of information technology on real estate licensee income, The

Journal of Real Estate Practice and Education, 2002 by Jud, G Donald, Winkler, Daniel T, Sirmans, G Stacy

Executive Summary. The evolution of the Internet and other forms of information technology are changing dramatically the way the real estate brokerage industry does business. While a number of previous studies have examined the earnings of real estate salespersons, few have looked at the use of information technology as it relates to real estate licensee income. The purpose of this study is to examine this relationship using a combination of factor analysis and regression modeling. The findings support a positive impact of information technology use on the earnings of real estate licensees.

Introduction

The real estate brokerage business is on the cusp of a radical transformation brought about by cyberspace technology. The flow of information in the real estate market is increasing quickly because of the proliferation of company websites, email, cellular phones, personal digital assistants, online linkage to financing sources and other technological advances. This new information technology is transforming established institutions and opening up new venues, as many traditional brokerage activities can be delivered more quickly and with more efficiency. However, the new technology also brings forth the threat of competition from Internet-based real estate companies. Real estate licensees are in the midst of this technological revolution. This study examines how new cyberspace technology is affecting the incomes of real estate licensees, using a factor analytic approach to capture the multifaceted effects of technological change.

The analysis of real estate licensee earnings is grounded in the human capital theory developed by Mincer (1970), Becker (1975) and others. Labor economists using this approach have studied the returns to schooling, training and experience. A number of previous studies have examined the factors that determine the income for real estate salespersons. Research by Follain, Lutes and Meier (1987), Crellin, Frew and Jud (1988) and Glower and Hendershott (1988) were among the early studies of real estate licensee income using survey data from individual agents. Sirmans and Swicegood (1997) extend the analysis to include psychological and managerial measures such as job satisfaction and perceived negative image of the industry. Sirmans and Swicegood (2000) later examined how licensee income is impacted by other productivity influences such as technology and the use of assistants. Crellin, Frew and Jud, drawing on a nationwide sample, found a significant metropolitan income effect. Similarly, Jud and Winkler (1998) found a geographic influence in their study of income of professionals in real estate, securities and insurance sales.1

Few studies have examined the impact of new information technology on the earnings of brokers. The only recent study that deals with this topic is by Sirmans and Swicegood (2000) who report that high-income agents use computers no more intensively than low-income agents. The following sections discuss how technological change can affect the earnings of residential real estate brokers and salespersons. The next section provides an overview of the impact of recent technological changes on the incomes of real estate licensees. The sections that follow set forth the analytical model, and discuss the data and empirical results. The final section provides an overall summary and an evaluation of findings.

The Internet and the Earnings of Brokers

New cyberspace technology is making the housing search process cheaper and easier (Tessler, 1999). Real estate websites such as NAR's Realtor.com and Microsoft's Home-Advisor.com allow potential buyers to search available properties by location or zip code and narrow the search by adding information on desired amenities and price range. Many sites also provide virtual tours of home interiors, allowing buyers a 360 deg view of each room. When web searchers find something that meets their specifications, they can email their interest to the seller or the listing broker.

Websites also provide basic information about the home-buying process, loan qualification and other basics of a real estate transaction. They offer information about communities such as tax rates, school test scores, crime rates, etc. They also provide links to service providers: mortgage bankers, moving companies, utility providers, etc. Tools such as mortgage loan calculators and links to online appraisal services are commonly provided.

These online services are provided free to consumers because online service providers generate revenue by selling advertisements and links to other websites. This creates competition among sites to offer the most services to capture the highest traffic volume. Real estate websites can represent substantial resource commitments by their sponsors and there is continued pressure to expand and consolidate to capture an everlarger market share. This dynamic creates substantial change in the brokerage industry and the way services are provided.

Traditionally, brokerage firms have worked together to increase the efficiency of housing search through the local multiple listing service (MLS). By cooperating and sharing information through their MLS, brokers reduced the cost and raised the efficiency of search. Because access to the MLS was available to market participants only through member brokers, the MLS gave members an informational monopoly. Now, however, with the potential availability of free market information online, the power of the MLS monopoly may be endangered.