Trends in the Use of the Internet for Marketing Residential Real Estate in New Zealand

Sales and purchases of residential real estate are the most significant financial transactions that the majority of the population are involved with. As such they are concerned that these transactions are carried out efficiently and to their best advantage. One of the most significant changes affecting modern society over the last ten years has been the growth in consumer use of the Internet. This research examines the intersection of these two important issues – i.e. the use of the Internet for marketing residential real estate. Over the last twelve years Lincoln University has biennially surveyed residential real estate buyers and sellers in Christchurch, New Zealand. Findings from this research include the rapid growth of Internet use in recent years at the expense of newspaper advertising. However, the radical change in real estate brokerage services predicted by earlier researchers has not occurred – at least not yet. But major changes in Internet access and use are still underway and their effects on real estate brokerage may not be fully played out for some time to come. Introduction. The growth of the use of the Internet, and in particular the World Wide Web, over the last 10 years has been phenomenal and impacted on nearly every area of life in developed societies. One of the most important aspects of peoples’ lives is their physical living conditions, and in New Zealand, as in many other western countries, this is typically a residential property owned by the occupier. Owner-occupiers therefore have a particular interest in the operation of residential property markets and this paper examines how the Internet is impacting on marketing processes in this real estate sector in New Zealand. Traditionally New Zealanders have adopted new technology rapidly, with the relatively small scale of the country and well developed infrastructure facilitating this process. Internet use has followed this pattern with World Wide Web access now available to the vast majority of New Zealand homes (80.7% in the most recent version of this survey). Lincoln University has been teaching and researching real estate valuation and management since 1938, and over the last twelve years has been surveying house buying and selling practices in Christchurch, New Zealand on a biennial basis. This research project covers a wide range of real estate issues including listing, marketing, and selling practices, advertising and commission costs, pricing trends, market share of real estate agencies, spatial movements and other demographic characteristics of buyers and sellers. The research has been funded by the Real Estate Network – a multiple listing bureau type organisation. Although not the primary focus of this research, the questionnaires used have since 1999 included questions on the use of the Internet for real estate marketing purposes. This time series of similar survey questions answered by relatively large and homogenous samples of home owners has facilitated the identification of trends in Internet use. It has also helped in identifying if the predictions that were made back in the mid 90’s in relation to marketing real estate have indeed come to fruition. Literature review. Baen and Guttery in their 1997 paper “The Coming Downsizing of Real EstateApplications of Technology” hypothesised that the growth of the Internet would significantly impact on the market for real estate brokerage services as well as other property related services. In relation to brokerage they predicted a reduction in the number of people involved in the industry and downward pressure on real estate commissions. Also predicted were an increase in fixed marketing fees per transaction and an increase in the support services provided by real estate brokers. The rationale for these outcomes was in part because the brokerage industry exists because of inefficiencies of the traditional real estate market. In the absence of cheap reliable market information real estate brokers act as information intermediaries as well as negotiators. It was believed that the rapid growth of cheap and available information over the Internet would reduce the role of real estate brokers and other property professionals as sources of information. As the value of providing that information had become part of the transaction cost (around 6% of sale price in the United States at that time) reduction of information costs and alternative sources were predicted to drive sales commissions down to around 3% of sale price. Baen and Guttery (1997) also provide figures regarding Internet use in 1996, with 17% of the USA population 16 or older having Internet access at that time. Even in those early days of the World Wide Web the rapid growth of real estate content on web sites was highlighted. In January 1995 there were approximately 100 websites offering real estate for sale but by the end of 1995 this had grown to over 4,000 real estate related websites in the United States. The paper also discussed how comprehensive marketing and purchasing information was then lacking on the majority of web sites but it was anticipated that, with the development of new technologies, provision of a much greater range of information was on the horizon. Of particular note was digital photography. Other comments in the paper related to how real estate professional bodies were trying to retain ownership of property market information in the face of the threat to their position from more widely available real estate information. Benjamin & Chinloy (1995) conclude that sellers adopting technology will achieve higher sale prices in shorter time periods but Baen and Guttery (1997) debate this assumption saying that if innovations are adopted across the market place it is more likely that the brokerage industry would be more affected. They also observe that market information is power and real estate market information has previously been largely controlled by real estate brokers via the National Association of Realtors. The rapid emergence of virtually free information via the Internet would transfer some of that power to consumers. Rosen (1996) supports this view and is also quoted in the Baen and Guttery paper as follows “Underlying the squabbling [among agents] is the very real spectre that the information-laden Internet and World Wide Web could replace much of the public’s needs for agents’ traditional house hunting services.” This threat was recognised by some in the industry at that stage and the National Association of Realtors tried to pre-empt the threat by establishing its own listing access vehicle. However, Baen and Guttery did not believe that this would be effective and predicted the availability of complete property marketing information to all market participants in the future – supplanting brokers developed information monopolies. The overall conclusion of Baen and Guttery was that in the new technological state of the world any inefficient real estate services ware likely to be eliminated altogether. It was considered that the focus of the real estate brokers role would shift from being a provider of market information to a negotiator or facilitator of agreement between the buyer and seller. Gilon and Cardenas (1995) also quoted in the Baen and Guttery paper concluded with an extract as follows “Bill Gates, Chairman and founder of Microsoft Corporation, recently identified real estate as one of the industries that will be revolutionised by technological change”. The focus of this paper will be to determine which of Baen and Guttrey’s predictions regarding the future of the real estate brokerage profession have proved correct to date in the New Zealand context since their paper was written 10 years ago. Bond, Seiler, Seiler and Blake (2000) examined the efforts of residential real estate brokers to keep up with Internet development by gathering listing information from existing real estate brokerage websites. Their study aimed to assess the degree to which the real estate brokerage industry had responded to the opportunities to promote properties and brokers via the Internet. The literature review in the Bond et al paper repeats some of the early Internet usage figures used by Baen & Guttery. They additionally report that by the end of 1996 there were approximately 8000 real estate web sites but the National Association of Realtors estimated in the same year only a few thousand properties were actually listed for sale on the World Wide Web. By October 1999, www.realtor.com listed 1.3 million homes for sale and 9% of all web pages on the Internet were associated with real estate. Bond et al also note that non real estate organisations such as Genie, Prodigy and Compuserve devoted a great deal of space to real estate forums or bulletin boards on the web. Also America On Line had an active real estate desk. Local newspapers were attempting to protect the $2.5 billion classified advertising revenues they earn from realtors by offering their own real estate websites. Customers were reported as becoming much more sophisticated in regards to selling their home and are using the Internet not only to find properties, but to obtain ratings and evaluations of realtors and other real estate related services. 3.4 million American adults had web access as at 2000 and Bond et al considered it was inevitable that businesses such as real estate brokerage would need to sell their products and services in the low cost environment the Internet provides. They also note that small firms now have lower barriers to entry as a single employee can be represented on the web in a similar fashion to far larger organisations. Similarly, the Internet was perceived to have reduced the barriers to owners selling their properties privately as they can now access much the same market as traditional real estate brokers have been able to. This reduction in entry barriers can result in increased competition and potentially lower prices for brokerage services. In response, in addition to the properties they have for sale, some brokers were actively adding additional services via the Internet particularly in relation to providing more generalised information about localities, demographics, population, services etc. Bond et al detail the results of a survey of 1,800 Ohio real estate brokerage firms during 1999. While only 16.5% brokerage firms operated their own websites, the vast majority had access to a website maintained by somebody else. 16.1% of brokers stated they could not see the benefits from using a website. It was felt that from the overall brokerage industry perspective, it made more sense to have one large website rather than thousands of individual small sites as users prefer to access a single site for all listings. Those brokers who did maintain their own website believed that it provided another way to reach potential customers. They also indicated a fear of losing business if they did not have one. At the time of the survey these individual web sites had been operational for approximately one and a half years on average. While the mean number of hits per day was 440, this was extremely variable between different websites. Another part of the survey dealt with website errors, and in particular firms were asked the level of out of date listings on their websites. The mean percentage of stale property listings was 2.81% but it was suspected these figures were under reporting the actual situation. Surprisingly, 14.3% of the websites did not have photographs of listed properties. It was reasoned that improvements in technology would address this problem. The paper also mentioned the possibility of the future of virtual reality type walk through of entire properties. The second section of the survey dealt with more technical aspects of how the Internet service was provided, and also requested detail on the types of information available on websites. Most had geographical information, asking price, floor and land area, typical features and a picture of the outside of the house but only a small minority provided information on recent comparable sales and most of those responding did not plan to make this type of information available in the future. The research conclusion was that the quality and quantity of information available over the Web was steadily increasing, much of it due to the advances of technology that made it easier to gather and upload that data. Brokers have a cheap means of promoting themselves and their listings but face increased competition. The Internet allows buyers to shop at their own pace and learn a great deal before they begin any actual negotiations. Sellers can now more easily see other homes in the area and can be much better informed before they choose a broker. Bond et al conclude that brokerage firms operating without listing their properties on a website and continuing to keep pace with developments in the future do so at great economic risk. Littlefield, Bao and Cook (2000) report on research that comes closest in terms of objectives and methodology to the research presented in this paper. Their research involved a mail survey on Internet use of 1,500 purchasers of urban and rural properties in the south-western Virginia/Maryland area of the USA .The response rate was 35.5 %. Again, the research referred to the earlier papers outlined above and other studies dealing with the impact of the Internet on the real estate industry and the growth of real estate related web sites (Bivins 1999, Patton 1999). However, it noted while the importance of the Internet to the real estate industry had been examined, there had been scant research investigating specific Internet usage from the home purchaser’s standpoint. In particular, it stated it was not known what proportion of consumers use the Internet to augment their search for property information and to what extent it is seen as beneficial. The paper mentions a paper by Thrall (1998) which predicted home buyers in the future will be able to search using house specific information such as style, features and amenities, obtain location information and take a computer generated walking tour of both the targeted house and surrounding community without stepping outside their homes. Littlefield et. al. break down the types of information gathered from the Internet into two main categories. One, regarding the broker/agent/company themselves and the other regarding specific properties available for purchase. They point out that availability of the Internet does not mean that it will be used, so the research was to investigate the usefulness of the Internet to real estate purchasers. Results include 37% of respondents reporting using the Internet to find information on their property. This compares with 82% who indicated using brokers or agents and 61% who used newspapers. It was apparent that more than one source was used by many buyers. As would be expected, significant correlations were observed between use of the Internet and consumers having access to the Internet and awareness of Internet real estate information Of the 37 % of respondents that used the Internet for sourcing a house 51.7% said they would use it for future home purchases. The authors hypothesised that those successful in using the Internet to find a house are likely to use it again in the future, but the converse could also be true. The rate of growth and consequent impact on traditional brokerage services may depend on consumers initial experiences. Their findings were somewhat different in that those with a greater degree satisfaction with the performance of the realtor showed lower potential to use the Internet in future home purchases in favour of personal service.. On the other hand bad service will drive away customers even if the broker or agent is equipped with advanced technology. Littlefield et al concluded that Internet use is important and growing strongly, but far from replacing agents and brokers at the time of the research. Significant relationships were found for Internet access, age, perceived effectiveness, awareness of the existence of real estate information on the Internet and prior use of the Internet for home buying. The above review of the literature revealed little research had been done directly with consumers using the Internet to find properties and that much of the other research raised more questions than it answered. This is to be expected given the recent emergence and rapid growth of the Internet, but it is hoped the research reported below will at least throw some light on aspects of the current situation, even though it is unlikely to remain current for very long in this rapidly evolving environment. Methodology. The primary research instrument used in this research was a mail survey of buyers and sellers of residential house properties in Christchurch, New Zealand over a three-month period leading up to April 2005. The questionnaire used was a slightly modified version of the document used in similar research carried out biennially over the last 12 years. It is a comprehensive survey with 72 individual data items of which only a small number relate to Internet usage. This research was carried out on behalf of “The Real Estate Network” – a multiple listing bureau type organisation that dominates the residential real estate sector in Christchurch. A sample of 1500 residential property sales was assembled from the Quotable Value New Zealand (QVNZ) database in April 2005. (In New Zealand the details of all property transactions are required to be reported by law and are maintained in a publicly available database). The questionnaire was mailed out on 16 May 2005 and respondents were assured confidentiality and anonymity in a covering letter. Participation was encouraged by respondents having the chance of winning one of five dinners for two at a city restaurant. The response rate of 35.2% was very similar to previous years when this survey was undertaken. Data from the completed questionnaires was coded and then entered into an EXCEL spreadsheet before being downloaded into SPSS for Windows (version 12) for analysis. Analysis generated results in the form of descriptive statistics with some of the responses also subject to correlational analysis. In order to interpret the results that follow it is necessary to have some understanding of the operation of the residential real estate market in Christchurch. Property Market Structure The majority of residential property is bought and sold in New Zealand utilising the services of real estate agents (brokers in some countries). In New Zealand real estate agents are defined by law and required to be licensed. It is also possible for a company to be a real estate “agent” if it is under the control of a licensed person. Agents in turn can employ salespersons (who have to obtain a certificate of approval from the Real Estate Agents Licensing Board) who generally carry out the sales process and draw up sales agreements. Payment for a successful sale is made by the vendor on a commission basis (traditionally in the vicinity of 3% of sale price) to the real estate agent. The real estate agent will share this with the salesperson on a mutually agreed basis. The agent generally meets office and advertising expenses and the salesperson does not receive a salary – only their share of the commission. Advertising Media There are a number of franchised marketing operations that promote a “brand” that individual real estate agents can operate under. The largest of these in Christchurch is “Harcourts” who publish a free weekly glossy magazine (The Bluebook) containing franchisees listings. This is widely distributed throughout the city. The other franchise groups and individual agents tend to use a publication named “The Realtor” to advertise their listings. This is published by the Real Estate Networka multiple listing bureau type of organisation, and will include the listings of any agent. Again this is a free weekly glossy magazine distributed throughout the city. Both Harcourts and The Realtor also maintain websites containing their listings, as do most individual real estate agents. The Real Estate Institute of New Zealand also maintain a very large listing website – “Realenz”. This is available for advertising listings at relatively low cost to all real estate agents in New Zealand and is widely used by agents and frequently accessed by the public. Since this research was carried out “Trademe”, the dominant general auction web site in New Zealand has established and heavily promoted a real estate section on their site available to anyone, including real estate agents. This has attracted a significant number of listings but its effect is not reflected in these findings. Other common advertising media for real estate listings include “The Press” – the Christchurch metropolitan daily newspaper, the “Star Weekly” a free metropolitan weekly “advertising newspaper”, similar weekly suburban newspapers, and the “Buy Sell and Exchange” – a weekly classified advertising publication. There is also a publication and associated website named “Homesell” dedicated to vendors wanting to sell their homes themselves, without the involvement of a real estate agent. There are also on site signs and window displays in real estate agents offices which are spread throughout the suburbs.