The real estate market refers to the market for the sale of land, homes and commercial buildings. The markets are primarily divided into three segments: residential, commercial, and industrial (Cambridge Business English Dictionary, 2021). The industry is sensitive to a number of macroeconomic variables, including the interest rate, economic growth, and demographic trends. It also responds to changing regulatory conditions, such as environmental and social legislation, affecting land use.
As a durable good, real estate is both an investment and consumption good. It can be purchased with the intention of generating income (an investment good) or used for living purposes (a consumption good). This dual function creates an inelastic demand for real estate, meaning that its price will increase only when consumers perceive a greater value or need for it.
Real estate is a complex product, making it difficult to define its market. It is immobile (with the exception of mobile homes), which prevents it from moving to meet consumer demand, despite changes in consumer preferences. Additionally, it is heterogeneous, with each unit of property providing different services and thereby requiring a unique market adjustment mechanism. This heterogeneity increases search costs, leads to information asymmetry and restricts substitution. As a result, the real estate market is highly fragmented, with high entry and exit costs. Due to these challenges, real estate agents are required to have in-depth knowledge of the market and its underlying drivers in order to effectively operate in it.