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September 28, 2005
Technology is making real estate's business model obsolete
To paraphrase Shakespeare, the first thing we do, let's kill all the real estate brokers. That's the implied thesis of today's Wall Street Journal column by Alan Murray: How Long Can Middlemen Hang On?
How is it still possible, asks Murray, that real estate middlemen are able to pocket 5% on every transaction? The answer could be that real estate brokers are dipping into their bag of dirty tricks to fend off Internet competition. At a time when middlemen have been squeezed out of the online travel business and out of the stock brokerage business, real estate brokers are making record windfalls. This, at a time when technology (in theory) is making their work easier. Murray explains:
"It's remarkable that in today's economy, this classic middleman business model survives -- and not just survives, but flourishes, like a hardy breed of insect. There are more Realtors out there today -- 1.2 million -- than there were a decade ago. Compare that with what happened to stockbrokers, a similar breed who saw their commissions fall from dollars to pennies over the course of three decades. Or look at the even more dramatic fate of travel agents, whose commissions on airline travel plummeted from 12% to nothing between 1995 and 2002. In an age when information was scarce, Realtors could claim big commissions, because they controlled the gold -- the information on houses for sale. But in an age when information is ubiquitous, it's hard to understand how they continue to rake in such fees."
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