Technology and the future of real estate
From the latter decades of the 20th century, technology has seeped into most facets of commercial industry. Computers, digitisation and the internet have permanently altered how we consume goods and services. You only have to look at the explosion of companies like Amazon and Netflix, to realise how much of an impact digitisation has had on the retail and entertainment industries. Despite this, the real estate market hasn’t quite experienced the same evolution.
Of course, you can view properties online, like a sort of digital classified section, and your first step in contacting an agent is probably email. But these technologies have simply replaced the newspaper and the letter; the real estate industry as a whole hasn’t really experienced a major technological shift… until now.
People are looking to emerging technologies such as Artificial Intelligence (AI), Blockchain and virtual reality to improve transacting, marketing, and to generally make real estate agent’s lives easier. New buying models such as fixed-fee and iBuying are threatening the more traditional buying methods. But which of these new technologies will actually improve the real estate market, and how will they topple traditional transaction methods? It looks like time will tell, but to help answer some of these questions, and to predict the future, I spoke with Co-CEO of OpenAgent, Zoe Pointon.
C’mon, Slow Poke
Pointon notes that after her 6 years working in the real estate tech industry, not a whole lot is different.
“On the technology side, I don’t think a lot has changed, we've been doing this for 6 years. One of the reasons we went into it was that despite there being a lot of tech available it wasn't going to good use. There were classified style advertisements up online but beyond that, technology hadn’t been used in the process a whole lot.”
So why has real estate been so slow to catch up with the rest of the tech world?
Well, one answer is that it’s a big industry. In fact, it’s the world’s biggest.
A 2016 report by London real estate advisor Saville estimated that the global property market was worth 217 trillion, accounting for 60% of all mainstream assets.
As with a lot of industries, the bigger they are, the harder they are to shift and the slower they are to change. Real estate is the largest commodity in the world, so it goes without saying there are a lot of very ingrained systems in place that govern the buying and selling process. The most prominent of these is the role of the real estate agent.
Where does technology fit?
The typical real estate agent is expected to cover a lot - administration, marketing, advising, negotiation, researching, as well as finding buyers and sellers. So agents often have to work in teams or larger companies, with different people fulfilling different roles, however, most agree that there is still a lot of ‘fluff’, unnecessary tasks that agents don’t need to be doing that slow the process for everyone involved. Many also see a lot of issues and inefficiencies in property management, many citing a lack of transparency.
A real estate agent’s primary role is to build and maintain face to face relationships, whether that be with buyers, sellers or tenants, so any technology that awards them more time to do what they do best will, ultimately make the real estate market more streamlined.
Even down the line from the agent, there can be issues, such as transactions that are tedious and slow, but also hard to track. This is especially troubling considering they contain private details like social security numbers, offer terms and bank statements. With such a clunky process, many are calling for a system that reduces paperwork and makes transactions quicker, more secure and more efficient.
So there are a lot of problems to fix. Luckily in recent years, a lot of money has been invested in new technology and even into completely new transaction models that promise to either streamline processes or shake up the antiquated roots of the whole market. But which new technology will actually put its money where its mouth is? Let’s take a look at some of the technologies and models in the brave new world of real estate technology.
Artificial Intelligence (AI)
Artificial Intelligence technology is a hot topic right now, with great minds such as Elon Musk and the late Steven Hawking warning of its unbridled power. In the field of real estate, however, it’s unlikely to have any Hollywood-tier complications.
AI and automation do however have the potential to make life a whole lot easier for people working in the industry, particularly with administrative tasks. Although the technology is in its infant stage, ‘bots’ are currently being used by companies for administrative and technical issues. These bots collect data over time and learn to recognise, predict and generate patterns in information. It won’t be too long before AI can handle small frontline enquiries, such as answering questions about properties, locations or local markets, which will give vendors more research options, and real estate agents more time to handle serious enquiries.
Before we see C3-PO hosting open homes, one of the first places we’re likely to see AI in the real estate industry is in basic admin.
As Pointon states: “AI will be interesting because there are a lot of low-level admin tasks in real estate that don't necessarily have to be done by a human. At the moment a lot of it is offshore but I can really see automation or smart AI taking up some of these tasks. It’s fundamentally a very human business but where you have menial tasks, there will be a lot of opportunities for it to be done smarter and more efficiently, especially in this downward market.”
Ok, maybe the hype around cryptocurrency is over, but what are we actually left with now the gold rush has finished? Blockchain, the technology behind cryptocurrency actually has huge potential for many different applications besides virtual currency. Blockchain is a forever expanding list of records called ‘blocks’, with each block containing an encrypted hash of the previous. Think of it as a digital ledger.
The technology has already been applied to various commercial purposes that need to kill two birds - encryption and record keeping, with one stone … or block. Pointon says Blockchain will definitely shake up a lot of industries, including real estate, however, it may be a while before it is widespread and integrated into property transactions.
“Blockchain will have a really big impact, but it will be a long time. It will likely be downstream from where we are, but it will significantly improve the way we keep track of who owns what.”
ShelterZoom, was created in 2016, to tackle problems regarding real estate transactions, including buying, selling and renting. The multi-party platform aims to make the offer and acceptance process more streamlined while helping the final transaction to be more secure, efficient, and transparent to the parties involved.
Here’s a fun one. Gone are the days where your first glimpse of a house was a few boxes of pictures at the bottom of a newspaper. Even online images are getting archaic. Nowadays there are so many new technologies for showcasing homes, all at the disposal of real estate agents.
YouTube videos of properties have been around for a while now, but the advent of virtual reality and drone technology, means that you can experience a house, as if you were there, without ever having to visit it.
Drones can offer a bird’s eye perspective of a property and its surrounds, however, new 3D scanning technology is enabling agents to generate a home in 3D for VR purposes, creating super realistic, immersive walkthroughs.
Just take a look at Matterport, whose industry-leading scanning technology ‘True 3DTM Space Capture’ is becoming popular not just in property marketing, but also communication industries, retail, travel, hospitality, architecture, engineering, construction, and insurance.
Of course, most buyers would just simply like to visit the house at some point, and the scanning process isn’t cheap, but the technology has a large role to play for buyers who are distant, as well as overseas buyers. And actually, it's just a pretty cool idea.
There’s a phone app for just about everything these days, but what about property management? What if you could manage your tenants, repairs, rates and bills from the ease of your phone? Apps such as Rentec Direct, Buildium and Appfolio Property Manager, each offer management of a particular service, however, an overall management app is still yet to be developed.
Pointon believes that applications should be able to provide transparency between investors and their property managers.
“If you’re an investor, people don't really do a good job of monitoring your property. Questions like, ‘Should I be putting the rent up? Is it being maintained in a way that will avoid big costs down the line? Are they doing the best to get a quality trade at the best price when there is damage?’ I think there are problems that need to be solved.
An app where you can see all the expenses with marketing a property, depreciation schedule, maintenance costs, expenses for tax purposes. I think transparency can be provided with good technology systems. I can see a world where investors should be able to manage their investment property from their phone.”
New models in real estate
iBuying is a relatively new idea. Instead of selling through an agent, a vendor sells to one of many deep-pocketed startups who promise to buy the moment you’re ready. iBuyers make an offer, often within minutes, without even as much as a glance at your home, instead relying on their own property valuation models. Homes can be sold in anything from a few minutes to a couple of days, if you're after a quick sale, then it beats going to the market.
Companies like OpenDoor and OfferPad, claim not to be about flipping houses, but providing a great customer experience, albeit a quick one. In fact, many of these companies have phone apps and claim to offer a competitive market rate for your home.
The issue here is, you are selling to an investor, and surprise surprise, investors like to make a return. With these models, the commission rate is steep and you will often be charged a premium for the instant liquidation of your property. After all, the investor is taking the risk of buying your house without seeing it.
Also, iBuying isn’t available everywhere. Buying and selling property en masse takes a lot of start-up capital, and it isn’t yet viable in the Australian market. However, in the US, it’s big business, especially in Florida, where it takes up 4% of the market share.
OpenDoor recently received a 400 million dollar investment from Japanese multinational Softbank, and many other companies are similarly seeing promising financing. So it’s unlikely iBuying will go anywhere, however, it remains to be seen how much of a disruption it will make to traditional real estate selling.
“There's a role for ibuyers but I don't think it's going to take over the world. It's more something for agents to have in their pocket,” says Pointon.
Fixed fee models are another development that some believe will shake up the real estate market. After securing a vendor, agents are paid a fixed fee by the company as opposed to a standard commission rate. These companies tend to advertise their service as being cheaper than sourcing your own agent, however, many believe this model is simply a budget option that doesn’t actually provide an equivalent service or experience.
“The right way to go, is to pick someone who does a good job. I think the proposition of fixed-fee models is good, but a lot of these companies have grown really fast at the expense of the consumer. They're trying to make it more efficient and I believe in some of the things they are doing, but I just haven't seen it work to the same level as a traditional agent. You’re better off going with someone whose whole reputation is based on the service.
I believe in the genuine expertise that agents have built on over the years, rather than putting anyone in a system. Tech can't replace the human face to face level, explaining the market and local knowledge. People who don't want to pay more than $x will go for it, but for other people, it will seriously pay off to go with a traditional agent.”
Shared investing and shared ownership are two avenues currently getting a lot of attention in the real estate technology industry. Sharing the overall cost of a property is a great way to tackle affordability issues and is a great way for investors to get their feet in the door.
Brick by brick investing is a new model that allows people to treat a property almost like a stock market. One proprietor of the idea is Brick X, whose model works by dividing properties into 10,000 pieces. Investors can buy as many ‘bricks’ as they like, allowing them to earn net rentals in proportion to the bricks that are owned, and earning capital gains when bricks are sold.
Another company delving into the shared ownership model is Kohab, whose platform is designed to make it easier for people to co-own property. Kohab lets people collaborate with other investors and agents, sharing ideas and investment plans, as well as providing the tools and knowledge to move forward. The site provides all the legal framework to draw up a final contract and begin a shared investment. It’s a perfect way for friends to go into an investment together or for parents to help out their kids with a shared property.
Technology supporting agents
Despite iBuying offering a fast but costly service and fixed-fee models providing a cheaper option, most customers are still going to go down the traditional agent route. Any technology that makes the process easier for agents, as well as making it easier for vendors to get in touch with agents is going to be the most beneficial to more people.
Pointon states that “On the buying and selling side most people are saying they want more transparency, information and resources.”
OpenAgent was born out of a need to fill that gap in Australia’s property market - to create a transparent service where home sellers could find the right agent for their needs. Agent research can take a lot of time, and in a search it can be easy to side-step and miss out on top performers. OpenAgent has built a dedicated team to analyse performance markers including millions of sales and tens of thousands of customer reviews to match vendors with the right local agent for their property.
OpenAgent’s ultimate goal is to provide a common forum where everybody benefits. Buyers and sellers get access to a personalised service and free research through an online database and dedicated consultant support. Agents get continued business, online promotion and top sellers are rewarded for top results and providing exceptional customer service.
With this model, agents can focus on what they do best, which is face to face relationships.
“We believe in enabling efficiency and helping agents to sell more houses in a year.
Agents are absolute specialists at face to face negotiations. It’s what they do best, and anything else can be a distraction, so there is a lot of opportunity for companies and technology to make the process more efficient.”
The future of real estate looks bright. Although it's been a long time coming, groundbreaking technologies are slowly entering the scene, promising to shape everything from property management, to marketing. However, it looks like real estate agents aren't going anywhere in the near future, and new models of transaction have yet to prove that they can offer a viable alternative.
As Pointon highlights, fixed-fee models will likely provide a niche for customers who want a budget experience. Similarly iBuying, despite offering a quick turnover, is unlikely to absorb much of a market share because of its high premiums.
As Zoe highlights, “The whole group in the middle are people who want to go with a traditional agent and technology should be able to make that experience more efficient.”
“Rather than lots of individual agents, you’ll see strong agent teams emerging, where not everyone does everything. It’s different to what we have now, which is small teams, individuals, big companies and franchises.
In the future, you will likely see a fewer number of agents selling the bulk of properties. These agents will be people who’ve been in the industry a long time and know what they are doing. Technology will help the traditional agent do what they do more efficiently.
Agents will ultimately be able to sell more houses, so there will be lower commission rates for consumers That's going to be the evolution. It's going to happen slowly but if you look at the market in 2030. It will be very different.”