Technology and Barriers to Entry in the Real Estate Brokerage Industry

Maisy Wong, Real Estate Department, The Wharton School, and Panle Jia Barwick, Cornell University

Abstract: The real estate brokerage industry is important. For a majority of U.S. households, purchasing or selling a home is one of their most important financial decisions. The National Association of Realtors (NAR) estimates that almost 80% of residential real estate transactions involve a realtor.

The industry has gone through several significant developments in the past decade. Perhaps the most important change is the increasing importance of the Internet in disseminating information by various parties involved in this industry.

We plan to examine the impact of the Internet on the market structure of the real estate brokerage industry. We are interested in three measures of market structure. First, we are interested in entry. Next, we plan to look at the size distribution of brokerages and how the Internet has affected the competition between small and large brokerages. Our third measure of market structure relates to the growth of discount realtors. Our final set of outcomes relates to effects on buyers and sellers. Has the Internet led to better and faster matches between properties and homebuyers? The National Realtor Survey reports that 85% of buyers use the Internet to obtain housing information. We plan to study how the trends discussed above have changed with the expansion of the Internet.