Real Estate Tech Revolution
Software is Eating the Real Estate Services World Next
Why we’re in a historically inevitable revolution in how we buy, sell, and rent real estate.
The era of real estate platforms and marketplaces has passed. We’re now entering the most significant revolution of real estate yet: the full-stack real estate services revolution.
Today, technology is shifting focus into the offline world of services across many industries. Andrew Chen, General Partner at Andreessen Horowitz, captures the different eras of technology in his essay. I also discussed a similar phasing of real estate technology in a past post.
Working on Onerent over the last five years, I’ve observed the trends of the industry. We’re a Proptech company in property management services — leasing and managing over 8,000 rental properties across the West Coast of the US. From what I see, it’s clear that we’re in the beginnings of a historically inevitable revolution in real estate.
General consumer technology has experienced four unique eras, as summarized by Andrew Chen:
- The “Listings” Era (1990s)
- The “Unbundled Craigslist” Era (2000s)
- The “Uber for X” Era (2010s)
- The “Managed Marketplaces” Era (2015–2018)
- The “Regulated Services” Era (2019-)
Real estate technology has made notable, yet different progress, along a different path after the “Unbundled Craigslist” era:
- The Listings Era (1998-2000s)
- The Unbundled Craigslist Era (2010s)
- The Utility Marketplace and Smart Home Era (2009–2018)
- The Full-stack Services Era (2019 -)
In the post below, I’m going to cover why software is eating the real estate services world — and specifically, why now?
What is Real Estate Technology?
The Listings Era — Platforms
The first phase of real estate technology was the same as most industries. The “Listings Era”. In real estate, these came in the form of online listing platforms.
Listings sites popped up in every industry. The idea: Put an old experience — the yellow pages or newspaper ads — on a new medium — online. The objective of a listing platform is to aggregate scattered information and expose it to the public (usually for free), drive huge traffic, and sell traffic to advertisers. There are countless of these sites still today that you browse to buy, sell, or rent a home.
The Unbundled Craigslist Era — Marketplaces
The second phase of most consumer technology is called the “Unbundled Craigslist Era”. Real estate technology also experienced this era with the rise of online marketplaces for buying, selling, or renting homes.
The hallmarks of products in the “Unbundled Craigslist” era are: more sophisticated filtering options for searching listings, limited communication with the end service provider, and added context such as user reviews.
Unbundled Craigslist is the second phase for real estate technology as well before it veered another direction.
Real estate takes its own road
Most other industries in consumer tech moved from Unbundled Craigslist into the “Uber for X” era in 2009–2015.
The “Uber for X” technologies enabled automatic matching between market supply and demand, communication with the service provider, and a full booking and transaction experience on the platform. Think, Uber.
Real estate technology, however, took its own path. After entering the “Unbundled Craigslist” era with marketplaces, real estate tech did NOT move into the Uber for X era. Instead, it moved to what I call the “Utility Marketplaces” era.
Utility marketplaces were mostly companies from the Listings Era, adding platform features. These features were certainly important advancements in functionality aided by early data science and artificial intelligence — like Zillow’s Zestimate.
But leading real estate technology companies built their business on the existing industry — selling ads to real estate professionals. So they weren’t about to reinvent the business model on which their product depended.
There were no significantly disruptive new companies upending the real estate transaction business model or experience, unlike other consumer tech industries at the time.
The next frontier: Full-stack services
Real estate technology is entering it’s next era — very quickly. And there are new companies already hard at work upending the model. Full-stack services are the next frontier for real estate technology.
Full-stack service companies are controlling the beginning to end of a real estate transaction and sometimes managing the assets or logistics involved. Just like Amazon did for retail and cloud computing by controlling the online AND offline infrastructure of a market, real estate technology companies are following a similar trend.
The full-stack services revolution will arguably be the most impactful phase of real estate technology we will experience in our lifetime.
Proptech
So these categories of real estate technology — platforms, marketplaces, smart home, and now services — are summed up into “Proptech”.
Proptech is a tremendous market globally and its size varies in how you estimate it. But what we do know is that in the US, there is $3.5 trillion dollars of opportunity in the Proptech market, split across residential, commercial, rental, and construction.
Why has real estate been slow to innovate?
Real estate technology got stuck in that second phase of technology: the “Unbundled Craigslist Era”. The question is, why did real estate tech take a different path from there and “slow down innovation” relative to other industries?
1. Regulations
First, is regulations. The depth and complexity of real estate laws makes it difficult to disrupt. The ESIGN act, allowing for electronic signatures on contracts, was passed in the year 2000. Companies such as Docusign jumped on major opportunities after this regulatory change. And guess who were the first adopters of electronic signature technology — real estate agents.
2. The complexity of offline services
Next, the complexity of offline services. There’s a lot of in-person, offline parts of real estate that are tricky and sensitive to disrupt. I mean there are over 5 million professionals working across residential and commercial real estate services. That’s a lot of offline activities to account for or change.
3. Needs a lot of trust built-up
Third, real estate has been slow because there is a whole lot of trust that needs to be built up between suppliers and consumers in order for technology to handle more of the transaction. Real property is the largest asset class in the world and typically is on the individual level as well. So I need to trust a technology-enabled brand a whole lot more in order to feel comfortable adopting their model.
4. The real estate experience lags behind
All these factors and more add up to the fact that real estate lags behind in innovation.
Yes, an Uber ride is much more transactional than renting, buying, or selling a house. But isn’t it remarkable that the primary online interaction we have with real estate professionals today is still through website forms or email?
Why is the real estate services revolution happening now?
1. We trust the internet more
There are many transactional experiences in our life today that are done entirely through technology. In banking and finance, we trust the internet and mobile apps to manage our money so there is little need for local bank branches these days.
In real estate, we’re finally trusting the internet more because it’s how we find a home — thanks to the Listings and Marketplace eras of the past.
An interesting example to highlight the change in trust: Redfin recently launched Redfin Direct, a feature allowing homebuyers to basically click-to-bid on a home online. The company launched an early version of Redfin Direct in 2006, but it didn’t succeed. One of the primary reasons was that it was too early then, consumers did not yet trust technology enough to buy their home like they’d buy a lamp on eBay.
Now, we trust the internet to help us buy a home because we trust it with many other parts of life.
2. Investment is skyrocketing
Investment in Proptech is also skyrocketing, which helps companies accelerate the trust-building process, and deploy the capital necessary to change consumer habits.
All these factors are driving the real estate services revolution. And it doesn’t come as a surprise, because history shows us that dramatic changes in real estate are historically inevitable after a society undergoes another sort of significant revolution.
3. A real estate revolution is historically inevitable
Let’s travel back in time to the Industrial Revolution in 18th-19th century England. When the industrial revolution started in the mid-1700s, the average rents in the country started rising.
Average Rents in England & Wales (1640–1909)
However, during the industrial revolution, we see that the average wages and incomes only increased by about 20%, a slower rate of change than that of average rents during the time period.
Now looking at an index for the average housing quality, the quality of housing only started increasing in the 1850s, 100 years after the industrial revolution began. Quality of housing can be used as a proxy to understand the impact of technology in real estate. Because if an economy is becoming more productive and rich, then there should be ample room for improving the quality of housing.
Estimated Housing Quality by Period, England & Wales (1640–1909)
So during the British industrial revolution, housing costs increased faster than income, and with minimal improvements in the quality of housing.
Sound familiar?
History tells us that changes in real estate are reactionary. It’s been about 25 years since the internet revolution, and only now is real estate starting to fee the impact.
Housing costs are increasing faster than income.
Quality of housing has mostly remained the same over the years since the internet revolution.
These are the indicators that we’re entering the inevitable overhaul real estate as we know it. Technology is seeping into all parts of the real estate industry.
Who is impacted by this revolution?
1. Real estate professionals
5 million real estate professionals — brokers, agents, etc — in the US and millions more abroad, will need to adapt to the changing environment.
2. Real estate technologists
Real estate technology companies will need to redefine themselves as we’ve seen happening with the likes of Zillow’s move to compete with agents.
3. Consumers — buyers, sellers, investors, and renters
And then every real estate buyer, seller, investor, and renter out there will be engaging with new ways to transact on real estate.
Where is Proptech going next?
1. Creating liquidity
The real estate services revolution is producing companies and models that are designed to increase the liquidity in the real estate market. These companies are working to make it cheaper, faster, and better to transact on a property using primarily an engineered, internet-based business model and technology.
2. One-stop-shops
Real estate companies are raising massive capital to become one-stop-shop operations for all things buying, selling, investing, and renting. Our vision at Onerent is that rentals are a wedge into the real estate lifecycle. So we’ve set up a one-stop shop for rental services — building and managing the logistics of the whole process. We have to keep both the landlord and tenant happy so we have to work end-to-end to make that happen. We wouldn’t be able to deliver on our customer’s expectations without technology.
3. Blending technology with service
Companies will gradually, yet intentionally blend technology with service. The first things that will become technology-driven will be all the transactional, highly manual parts of real estate services, like touring or appraising properties.
How to stay on top of this revolution?
For those impacted by the revolution, there are some strategies to deploy going forward:
- Embrace the right tools and technologies: As a consumer or real estate professional, do your research to make sure you’re going with a reliable company that provides effective tools or services.
- Centralize your operations: For real estate agents and brokers, consider the reality that the traditional real estate franchise model may die out as it did with banks.
- Provide, partner with, or use full-stack services: There are many benefits to a full-stack service experience. As a consumer, if you use a technology-enabled full-stack service to transact on a home, then you can benefit as well. For example, at Onerent we launched Poplar Street to make it easier for renters to become homeowners by giving them up to 100% off a buyer’s agent commissions if they rent with us for a while. We can do this because we manage the full lifecycle of property management and, ultimately, can enable real estate sales.
- Automate where it makes sense: Real estate agents and brokers can identify and automate the highly manual and highly transactional parts of their process. For example, automate the process for someone to book a showing by using chatbots on your website. This will give you more time to focus on building teams of experts for each part of the real estate process, and scaling your business.
- Build teams of experts: Rather than trying to be an all-in-one real estate lawyer, marketer, salesperson, property manager, customer service agent, and more — consider outsourcing or delegating the more repeatable processes to others. This way, each team can become experts in their respective part of the real estate process and technology can tie everyone together.
In Conclusion
A 2018 Deloitte survey of the commercial real estate industry, 9 out of 10 respondents believe Proptech will have a moderate to significant influence on the real estate industry. The top way industry players expect to get involved is either by investing in or partnering with Proptech companies.
In conclusion, we are at the beginning of a historically inevitable revolution. We are 20–30 years past the internet revolution — housing prices are growing while income is growing slower, and the quality of our housing experience has been stagnant.
Full-stack real estate services are the next frontier in Proptech and will change the dynamics of the real estate industry. So I guess it’s about time we get together to take part in this revolution.
This article is derived from a talk I gave at the Tech Estate Today conference in San Francisco in May 2019. If you’d like to download the slide deck presentation that goes along with this content, sign up below:
