Technology is disrupting the industry—and there’s no turning back.
Worldwide, the real estate industry is valued at more than $210 trillion and more than $30 trillion in the U.S. when it comes to just housing. It is a massive industry but one that for decades has done little to evolve and adopt new technologies.
While the legacy firms continue to largely operate as usual, new and innovative businesses backed by venture capitalists are breaking into the mix with their tech-based philosophies. Companies like Zillow, Redfin and Opendoor are connecting potential homebuyers with properties in new ways that are beginning to disrupt the old-school mentality associated with the real estate industry.
Since its birth just six years ago in 2013, Opendoor, an online-based flipping company, has seen its valuation climb to nearly $4 billion. Zillow, which started as an online home database, generates more than $1 billion in revenue. And when Redfin went public in 2017, it had a market capitalization of $1.73 billion.
Granted, legacy firms, like New Jersey-based Century21, are still worth far more than newer entrants. Zillow launched in 2006 and Redfin in 2004. Century21 started in 1971 and has more than 120,000 employees in 80 countries and territories, with annual revenue of around $6 billion. Although the legacy firms continue to have a stronghold on the market, history suggests that tech-based companies tend to disrupt the model.
Companies like Uber and Lyft have changed the way people hail for a car, even to the point that states and cities are looking to pass laws to regulate the industry. Even in commercial real estate, startups like Airbnb and Flipkey have revolutionized how consumers can rent a room or house while sharing those profits with its registered clients.
Technology is fueling these changes, and when it comes to real estate, there are signs the industry is no longer immune.
iBuying Driving Change
Since its founding in 2013, Opendoor has risen from a little-known company outside of the real estate industry to shaping the way its competitors—new and old—conduct business.
The home-flipping company works in a market called iBuying, along with competitors such as Offerpad and Zillow. iBuying removes the burden of selling a home on the real estate market, meaning traditional companies like Century21 associates are losing potential clients and commissions.
Through the iBuying model, a seller seeks an offer from an iBuying company, which returns a price in a couple of days. The price is determined on exclusive valuation models to the specific company. If a deal is reached, the seller avoids the need to list the property, or work with a real estate agency, while completing the transaction in a matter of days, not months.
In return, the iBuying company now owns the home. In Opendoor’s case, the company seeks to buy low and sell high when it flips the property.
Although the iBuying process wants to reduce the headaches that come with selling a house, the downside is the homeowner may not get full value for their property.
Blockchain Making Inroads
Blockchain is the record-keeping system behind bitcoin. Even though real estate transactions aren’t using bitcoin, the technology protects sensitive information, such as transactions, in such a manner that makes it difficult to steal.
In the real estate industry, blockchain has many applications. Perhaps the biggest benefit is its ability to limit the need for intermediaries, like brokers and escrow companies.
A 2019 report from CB Insights says, “Many intermediaries—from brokers to escrow companies—could be rendered obsolete by blockchain-based approaches, as records could be stored, verified and transferred using blockchain technology.” The result is reduced costs and time savings, making those companies more vulnerable should the technology become more widespread.
The CB Insights report also noted:
- The technology can improve transparency and trust since blockchain “offers a verifiable and censorship-resistant option for sharing information, such as valuation details.”
- Real estate operations “would benefit from secure and tamper-resistant shared databases that compile data and documents from various different stakeholders.”
Though blockchain’s decentralized digital method is not going to reshape the industry tomorrow, real estate tech-based companies are looking at its application as a future means to conduct business
and secure data.
Picture This: Augmented Reality
Real estate photography is key to helping agencies and agents get the attention of homebuyers. When print media was the main avenue to showcase a home to a buyer, photos were usually limited to one small photo of the house. The internet, however, makes it possible to upload more photos of a home, showcasing properties in a way that piques buyers’ interest.
Augmented reality takes photography one step further. The full capabilities of this new technology are still unknown, but some companies are experimenting with it. In real estate, AR is being used to create an interactive and visual experience to view a home from the convenience of a smartphone or desktop application in greater detail that is not conveyable through photographs or text.
Users have greater control of an experience that practically puts them inside the house to help determine if it is the right home. AR’s capabilities can even allow individuals to design the home to their personal style. This increased engagement improves the chances of selling the home, benefiting both the owner and the agency.
There’s No Turning Back
Rapid advancement in technologies that can enhance and streamline the buying process is here to stay. Companies old and new are finding ways to leverage these new tools to grow their businesses. Some new technologies, like AR and blockchain, still need more testing to find appropriate uses, which is already underway at several companies.
Perhaps, the most important message for an industry dealing with newer technologies is that the main customer base is a younger, digital-savvy group. Agencies and agents that decide not to incorporate newer technologies that provide secure transactions or enhance the homebuyers’ experience will likely find it difficult to compete.