- The document analyzes why online real estate listing platforms have failed to effectively connect buyers and sellers. It argues these sites inhibit the formation of a centralized marketplace by catering to real estate agents and excluding independent listings. In contrast, Craigslist allows an unrestricted marketplace to develop by offering free classified listings without barriers.

1. Connecting Residential Real Estate Buyers & Sellers Online:
Analysis & Review
Kenny Rosen
kar2001@columbia.edu
January 28, 2003
Columbia University
B9701, Final Project
Professor Adam Dell
Spring 2002

2. Introduction
Online real estate listing platforms have failed to fulfill the potential of marketing
residential property on the internet. While current estimates show that 70% of people
looking for a house or an apartment search online,1
an online search is fruitless in most
cases. Often these people surf to sites that have the largest number of listings in their
desired living location. For houses, the best selection of listings can be found at
Homestore.com, MSN Homeadvisor and Yahoo Real Estate. For apartments, the best
selection can normally be found at local websites, such as newspaper websites. Even
with these options, only 8% of recent move-ins said they first learned of their residence
on the internet.2
Comparatively, around 48% of recent move-ins said they first learned of
their residence from a real estate agent, 15% cited property signs, 10% cited print
advertisements and 8% cited word-of-mouth. In other words, after more than three years
since the launch of the leading residential real estate website, Homestore.com, there has
been minimal progress towards making the internet a useful source of property listings.
The above data also reveals that real estate listing sites have been unhelpful for
people hoping to market their residence. Viewing the data from their perspective, only
8% of potential buyers or tenants are obtained from an online listing. The inadequacy of
listing online is expressed further by a recent survey where only 9% of home sellers said
the internet played a significant role in the process of selling their home.3
An Online Real Estate Marketplace
That real estate listing websites have not proven to be more valuable meeting
points for buyers and sellers is astonishing in light of the numerous advantages marketing
on the internet affords. In particular, the online forum is ideal for organizing an
information-intensive marketplace that links buyers and sellers. With a website that
accumulates a directory of listings acting as the nexus point, the internet is fertile ground
from which an imposing network of real estate buyers and sellers can develop.
The technology of the internet allows for vast amounts of data to be stored,
published and updated online at relatively little or no cost. As a result, an online
marketplace can have property listings that are much more comprehensive than
equivalently priced offline listings. Beyond allotting more space for a written
description, an online listing can include floor plans and photos, as well as virtual tours.
Furthermore, consumers are given access to the latest property listing information on
demand; whereas offline listings are distributed on a weekly or less frequent basis,
resulting in data that can quickly become outdated.
The interactive environment of the internet overcomes other limitations of
traditional real estate marketing methods. A premium advantage is the ability to integrate
database tools into the online marketplace. As a result of these tools, buyers and sellers
save much time and effort. Instead of haphazardly scouring static listings, marketplace
visitors can filter the electronic listings based on detailed criteria such as desired location,
1
Reported in Wall Street Journal (April 11, 2002), Online Brokers Expect Some Brighter Days.
[http://homes.wsj.com/technology/technology/20020411-rich.html]
2
National Association of Realtors (June 2002), The 2002 National Association Of Realtors Profile of Home
Buyers and Sellers. [http://www.realtor.org/Research.nsf/files/HBHS02.pdf/$FILE/HBHS02.pdf]
3
Reported in Realty Times (July 12, 2002), CAR Survey Presents Internet Marketing Solution For Sellers'
Agents. [http://realtytimes.com/rtnews/rtapages/20020712_carsurvey.htm]

3. occupancy, amenities and price range. Moreover, listings selected by the user can swiftly
be assembled for convenient comparison or saved for future reference. For sellers,
managing an inventory of listings becomes a lot more efficient when utilizing these on-
site tools.
When it comes to creating a marketplace that links real estate buyers and sellers,
perhaps most significant is the ubiquitous nature of the internet. Traditional listing
methods only tap into specific local markets of buyers and sellers, while the internet’s
universal reach transcends geographic boundaries. By placing a real estate marketplace
online, it is possible to centralize buyers and sellers across diffuse markets; connected by
a marketplace website, every buyer can readily be exposed to every seller and vice-versa.
Subsequently, each buyer could have an optimal selection of listings and each seller
could have an optimal audience of potential customers.
At the same time, the internet empowers the disparate buyers and sellers to be the
ones to independently piece together the online marketplace. Without the need for
coordination, real estate sellers can converge on the marketplace website to build up a
directory of listings. Likewise, buyers can converge to fill up the customer side of the
marketplace. With sellers offering listings and buyers supplying sales leads, the value of
a centralized real estate marketplace depends on the number of buyers and the number of
sellers it attracts. As more buyers and sellers converge on the website, it becomes a more
compelling junction for all potential marketplace participants.
Growth of an Online Real Estate Marketplace
A centralized online marketplace grows rapidly via increasing returns where
marketplace expansion stimulates even more marketplace expansion. This potent
dynamic ensues from positive feedback loops, demonstrated by the interplay between real
estate buyers and sellers luring each other to a listings marketplace. As more sellers post
property listings, buyers are given greater selection from which they can decide what best
meets their needs. In response to a greater selection, more buyers will join the
marketplace to search the listings. And as more buyers search the property listings,
sellers are given a greater pool of sales leads. In response to a greater pool of sales leads,
even more sellers will list with the marketplace to obtain leads, which will attract even
more buyers, spurring on even more sellers, and so on.
The strength of increasing returns swiftly propels the marketplace forward and
sustains its growth through completion. Plotted against time, the trajectory of this self-
reinforcing growth is typically modeled as an S-shaped curve (see Figure 1). The curve is
concave up until the inflection point, meaning the marketplace’s rate of growth
continually accelerates until maxing out at this point (see Figure 2). This momentum
brings a substantial number of participants into the marketplace in a relatively short time.
Beyond the inflection point, the growth curve is concave down for the remainder of the
growth period. So, with a sufficient number of buyers and sellers in place, the rate of
growth slows down while the marketplace moves towards maturation.

4. Figure 1. Model of Increasing Returns Growth
Figure 2. Marketplace Growth Rate over Time
Current Trends in Classified Advertising
Due to the rise of the internet and the prospect of centralized online marketplaces,
it is reasonable to assume that real estate classified ad spending would progressively get
squeezed. Indeed, there are signs that this spending squeeze has started to take place in
all sectors of classified advertising except for the real estate sector. According to the
latest data from the Newspaper Association of America (NAA),4
the real estate sector
spent upwards of $3.5 billion on newspaper classified ads in 2001, a rise of 10.9% from
2000. Comparatively, combined newspaper classified ad spending by all the other
sectors fell 20.2% in 2001.
By far the biggest decline was in the recruitment sector, where spending dropped
4
Newspaper Association of America (November 2002), Newspaper Classified Advertising Expenditures.
[http://www.naa.org/artpage.cfm?aid=1570&sid=1022]
SizeofMarketplaceRateofGrowth
time 
Point of
Inflection

5. 34.5% in 2001, a reduction of over $3 billion. In fact, during each of the past seven
quarters recruitment classified ad spending has shown significant year-to-year decreases
(see Figure 3). Even more telling, going back to the earliest year in the NAA’s data,
1995, the amount of money spent by the recruitment sector is heading towards a new
annual low in 2002.
Figure 3.
Recruitment Sector Quarterly Spending on
Newspaper Classified Ads
$0
$1
$2
$3
Q1 Q2 Q3 Q4
Billion
2000
2001
2002
Source: Newspaper Association of America (11/02)
Although this dramatic decline is partly attributable to a weak job market, it
would be naive to overlook the emergence of centralized online job marketplaces forged
by job listers and job seekers. The expansion of the foremost job marketplace,
Monster.com, underscores how these sites have severely cut into recruitment classifieds.
Since the site’s inception in May 1995, Monster’s yearly job posting revenues have
surged (see Figure 4). Generating well over a half billion dollars in job posting revenues
in 2001, Monster is a salient example of the power of a centralized online marketplace.
The increasing returns inherent in Monster’s job listing directory has led to concave up
revenue growth, heralding an S-shaped trend over time. With more growth on the
horizon for online job marketplaces, the decay of recruitment classifieds is subject to
continue.

6. Figure 4.
$0
$100
$200
$300
$400
$500
$600Million
1995 1996 1997 1998 1999 2000 2001
Monster.com Job Posting Revenues
Source: TMP Worldwide (2/02)
In stark contrast to the recruitment sector, real estate classified ad revenues have
been trending upward. During each of the past seven quarters real estate was the only
sector to increase its year-to-year newspaper classified ad spending (see Figure 5). Also,
while recruitment is heading towards a new low, the amount of money spent by the real
estate sector is pushing towards a new annual high in 2002. This perpetuation of real
estate classified ad spending is further evidence of the lackluster performance of
residential real estate websites.
Figure 5.
Real Estate Sector Quarterly Spending on
Newspaper Classified Ads
$0
$.5
$1.0
$1.5
Q1 Q2 Q3 Q4
Billion
2000
2001
2002
Source: Newspaper Association of America (11/02)

7. Shortcomings of Real Estate Listing Websites
What is wrong with online listing platforms that they have not proven to be more
valuable to real estate buyers and sellers? By the same token, why have these websites
not seriously undermined newspaper real estate classifieds? The promise of connecting
buyers and sellers of residential real estate over the internet is not being realized because
listing websites inhibit individual buyers and sellers from establishing centralized
marketplaces.
For one, the dominant house listing sites, Homestore, MSN Homeadvisor and
Yahoo Real Estate, cater to real estate agents at the expense of all the other potential
marketplace participants. These sites depend on getting house listings from agents as
well as from the Multiple Listing Service (MLS) system that the agents manage.
Generally, any house put on the market by an agent is entered into the local MLS, a
proprietary database that is used to compile a directory of all the area listings.
Nationwide, there are over 800 MLSs.5
Only members of the local association of real
estate brokers can access the local MLS. MLSs are regulated by the National Association
of Realtors (NAR) which, representing close to 800,000 real estate professionals, is the
largest trade association in the US.6
Thanks in no small part to the MLS system, close to
85% of the more than 6 million annual house sales are brokered by real estate agents,7
enabling them to earn ample commissions that hover around 6%.
By working closely with MLSs and agents, Homestore, Homeadvisor and Yahoo
have accrued impressive selections of house listings. Homestore runs Realtor.com, the
official Web site of the NAR, which boasts over 2 million house listings from nearly all
the MLSs.8
Homeadvisor is reported to have more than 1.5 million listings,9
while Yahoo
is reported to have over 1 million.10
Both Homeadvisor and Yahoo acquire house listings
through agreements with various real estate brokerages as well as many of the same
MLSs that list with Homestore. Yahoo also has distribution deals with smaller listing
sites and is the only one of the three willing to post for sale by owner (FSBO) listings and
direct listings from individual brokers. However, Yahoo has begun to prohibit
independent listings in several markets as the site deepens its ties within the real estate
industry.
Because of their tight relationships with the industry, these house listing sites are
beholden to the interests of the agent. In order to protect the agent’s leverage over the
market, they thwart the consolidation of listings by excluding sellers not affiliated with
MLSs or brokerages. This leaves directories of listings bloated by commission fees,
which subsequently repels many buyers who are interested in the robust competition and
fair pricing of consolidated listings. Therefore, in addition to thwarting the consolidation
5
Realtor.com site statistics (2003). [http://www.realtor.com/iMarketing/About/stats.asp?poe=realtor]
6
National Association of Realtors PR (June 2002), NAR Buyer and Seller Survey Confirms Recent Trends.
[http://www.realtor.org/PublicAffairsWeb.nsf/Pages/02BuyerSeller?OpenDocument]
7
The 2002 National Association Of Realtors Profile of Home Buyers and Sellers
8
National Association of Realtors PR (June 26, 2002), Consumers Flock to REALTOR.com for the Most
Listings on the Web. [http://www.realtor.org/realtororg.nsf/pages/rcomconsumers?OpenDocument]
9
Microsoft PR (July 29, 2002), MSN HomeAdvisor Reaches 1.5 Million Home Listings Milestone.
[http://www.microsoft.com/presspass/press/2002/jul02/07-29HomeAdvisor2002MomentumPR.asp]
10
Reported in Realty Times (January 18, 2002), What Yahoo! Has For You In 2002.
[http://realtytimes.com/rtnews/rtapages/20020118_yahooads.htm]

8. of sellers, the sites also thwart the consolidation of buyers. In other words, the dominant
house listing sites work against the centralization of the marketplace and, as a result, add
little value beyond the agent-controlled framework of connecting home buyers and
sellers.
The apartment segment of the real estate business is a lot less organized than the
housing segment. Throughout the year, approximately 12 million apartments become
available.11
In a number of markets, including New York City, there is little sharing of
apartment listings among real estate brokers. Instead, the agents retain their listings from
brokerage agreements with local landlords and property management companies. For a
brokered lease, commission fees can be as high as 20% of a first year’s rent. There are
also rental service companies that have built up databases of no-commission apartment
listings. Yet, these databases only contain a moderate number of listings and full access
requires a 90-day subscription fee that can cost between $75 and $300.
Reflecting the fragmentation of the apartment market, online listings are mostly
dispersed among an assortment of local websites. For any metropolitan area, apartment
listing resources include several newspaper sites, brokerage sites, no-fee subscription
sites as well as independent listing sites. Many of these online resources, in one way or
another, hinder the consolidation of buyers and sellers at their websites. Some, such as
brokerage sites and no-broker sites, shut out potential sellers. Other sites, such as
newspaper sites and independent listing sites, deter sellers from listing by charging
excessive listing fees. For example, the New York Times’ website charges $150 for a
four-week run of one listing containing text and a single photo. Likewise, buyers may be
deterred from entering a site due to expensive access fees, as is the case with no-broker
subscription sites and some independent listing sites. Ultimately, these impediments
disrupt the centralization of the apartment marketplace where any buyer and any seller
can connect at a single online destination.
The Example of Craigslist
A unique site burgeoning on the web that permits a centralized marketplace of
real estate listings to develop unhampered is Craigslist.org (see Appendix). Craigslist
bills itself as an “online community” that aims to help people “connect with others in the
local community.”12
In order to achieve this objective, the site offers classified ads in an
all-access setting that is resolutely non-commercial. Accordingly, there are virtually no
barriers or drawbacks to taking part in Craigslist. In no time, visitors can post a free
classified to any one of the city sites that Craigslist has created. As well, visitors can
readily browse through the listings and contact an advertiser without incurring any costs.
The interface is crude and unadorned, but Craigslist has grown to attract over 2 million
different visitors a month and has started listing sites for 18 major metros. It is entirely
nonprofit and covers costs by charging a small fee to businesses that post jobs to the
original San Francisco portion of the site.
In Craigslist’s open environment the site’s local real estate sections have
flourished. Without the specter of expensive fees or restricted entry, buyers and sellers
11
Based on 2000 US Census Bureau housing data [http://factfinder.census.gov/servlet/QTTable?
ds_name=D&geo_id=D&qr_name=DEC_2000_SF1_U_QTH1&_lang=en] and 2000 Census Bureau report
on population mobility [www.census.gov/population/www/socdemo/migrate.html].
12
Craigslist.org fact sheet (January 2003). [http://www.craigslist.org/about/pr/factsheet.html]

9. can consolidate the local marketplace at each Craigslist city site. Subsequently, among
the city sites that have existed since 2000, the real estate sections are undergoing
increasing returns growth in line with the rise of centralized marketplaces; this is
illustrated by concave up trends in weekly postings (see Figure 6). Not surprisingly,
these real estate sections have become leading destinations for buyers seeking a multitude
of area listings and for sellers seeking customers. For example, with over 40,000 current
listings,13
the real estate section of Craigslist’s New York City site is recognized as one of
the top local listing resources for buyers and sellers.14
Craigslist’s success demonstrates
that in order to cultivate a compelling and dynamic centralized marketplace online, a real
estate listing site must not impede the ability of the buyers and sellers to assemble the
marketplace.
Figure 6.
0
500
1000
1500
2000
2500
3000
3500
4000
4500
WeeklyPostings
10/00 1/01 4/01 7/01 10/01 1/02 4/02 7/02
Craigslist NYC Real Estate Listing Trend
Source: Craigslist New York City (8/02)
Conclusion
The advent of the internet enables buyers and sellers of residential real estate to
consolidate a centralized marketplace at a single online destination. For both, this type of
setup enhances the real estate marketing experience and adds much value. Unfortunately,
most online listing sites do not try to harness the control buyers and sellers have over
developing a marketplace. Rather, they stunt the growth of a centralized marketplace by
inhibiting the participation of potential members. Instead of an online forum that
welcomes all buyers and sellers equally, one finds partiality. Instead of a consolidated
listing platform, there is fragmentation. Instead of empowering individuals, there is
suppression and containment. With Craigslist serving as an example, real estate listing
sites must embrace a model that encourages the participation of all buyers and sellers.
13
Craigslist New York City housing data (January 2003). [http://newyork.craigslist.org/]
14
See New York Times (January 23, 2003), A Web Site as 18-Ring Circus of Supply and Demand
[http://newyork.craigslist.org/about/press/circus.html] and The Wall Street Journal Online (May 13, 2002)
Tech Q&A - Craigslist Begins to Make a Dent In New York Apartment Market
[http://newyork.craigslist.org/about/press/nyaptmkt.html].

10. Only then can these sites fully capitalize upon the opportunity to connect residential real
estate buyers and sellers online.

11. Appendix

12. Reference:
Dell, A. (2002). Technology in Business and Venture Capital Process. New York, NY:
Columbia Business School.