Real Estate is one of the sectors that hasn’t been completely disrupted by technology. People all over the country (and world) continue to pay 6% of the closing price to sell their home, where
Home prices are driven as much by the agent base selling them as by the organic turnover within municipal populations. On the whole, home prices rise a little faster than inflation, but without redevelopment in an area, rarely in the double digits. Development means bringing in businesses and jobs to support the real estate.
The problem with the industry is that property transactions are a time consuming ordeal because there isn’t a real marketplace for real estate in the same way there is a market for stocks. For good reason considering that buying a home is typically the most important and costly asset in a person’s life. Yet, this time cost makes transactions more expensive when they do not need to be.
You would think that it would mean less turnover and compared to stocks, real estate does turn over less frequently. However, today’s average homeowner still moves every 7 years. That seems pretty aggressive. The industry must move toward a lower cost basis for buyers if property values are to stay at current levels.
Bottom Line: There is an opportunity for real estate companies to disrupt the market by lowering commission rates and a better marketplace for transactions, but the unintended consequence may also mean smaller long-term price increases.