The future of residential real estate
Residential real estate is on the brink of transformation, and from my recent experience researching the property purchase consumer journey and understanding the many pain points in the process, consumers are more than ready for the change.
The way we buy and sell houses has barely evolved in the last century, as apart from a chunk of the searching process shifting online, the majority of steps in the buyer and seller journey remain offline, with agents and brokers owning the moves. Buying a home is such a huge moment in peoples’ lives, and has the opportunity to be so much more joyful than it is, but the current experience is stressful, cumbersome, and emotionally draining.
The way we buy and sell homes is stuck in the 20th century. Real estate is broken, and it’s time to redesign how it works.
Becca Chacko, IDEO CoLab
But things are starting to change. PropTech (or real estate tech) is currently attracting a lot of attention from investors and the media. The below chart from CB Insights shows how media mentions of PropTech have skyrocketed in the last year.
CB Insights also reported a record year for real estate tech funding, with $2.69 billion in funding across 277 deals in 2016. Funding for 2017 is predicted to top last year, predicted to hit $2.97 billion based on the current run rate. Over $60 million investments went into PropTech in the first week of September alone, and the sector is predicted to be worth $20 billion globally by 2020, according to Real Tech Ventures and KPMG.
There are three major areas of transformation taking place in the real estate space:
- Lending transformation
- Disintermediated agents
- Portal land-grabbing
Lending transformation
The way we find, apply for and manage mortgages is evolving, enabled by digital technologies and a rise in transparency. New ways to digitise existing mortgage lending processes are being offered by tech startups to major lenders, at all stages in the mortgage customer journey. But as well as incremental digital evolution, we’re also seeing new lending models emerge, with peer-to-peer (P2P) lending just one new option available to home buyers.
Major players
Eave, Clara and Better in the US, or LendInvest in the UK are good examples of new digital mortgage lenders. For an alternative lending model, marketplace or P2P mortgage lenders SoFi and LendingHome in the US and Landbay in UK all offer home financing. The digital mortgage broker space is really hot right now and includes Habito and Trussle in the UK, Morty, Sindeo, Mortgage Hippo in the US and Uno and Lendi in Australia (disclosure: Uno is part of Westpac’s investment portfolio). On the B2B side, we’re seeing a rise in MortgageTech — technology designed to improve the processes and workflow of lenders. Blend Labs, Maxwell, Roostify, Approved (all US-based) are all making waves in this space.
Disintermediated agents
As we have seen happen in other sectors, ‘cutting out the middleman’, or disintermediation has transformed the way we buy clothes and electronics (ASOS, eBay, Amazon), go on holiday (Airbnb, Expedia, Skyscanner) or get insured (Zhong An, Trov, Benefits, Goji, Coverfox, CoverHound) — as just three examples. The effects of disintermediation are now hitting real estate agents, across three core areas of business; search, sale, and management.
Search
The search and listings space has been a focus of digital transformation for years, led by real estate portal giants like Zillow (US), Rightmove and Zoopla (UK), REA Group and Domain (Australia). More on these monsters later. Online portals, with ever-improving search usability, are replacing real estate shop windows and providing options for sellers to list their own properties. We’re also seeing an emerging trend in ‘always on’ property marketplaces where owners can list their property, even if they’re not in active selling mode, and buyers don’t have to lie in wait for years for their dream property to become available. Zillow and Zoopla both offer this feature, and always-on property startup SOHO (“LinkedIn for property”) from the co-founder of Airtasker is one of the latest to watch in this space.
In addition to listings, we’re seeing other tech-enabled solutions entering the property search space initially pitched to enhance but eventually poised to replace agents in the viewing phase of the home buying journey. House viewing technology from the likes of Matterport allows potential buyers to virtually walk through properties, either using VR headsets, 360 degree photography or 3D environments. Virtual “staging” tools to add furniture and decoration to empty or still-to-be constructed homes are helping buyers to visualise themselves living there, all the while developing that all important emotional connection with their future home. On a more practical side, tools like that offered by Homepass allow sellers (or agents) to manage open house viewings/inspections through an app.
Machine Learning algorithms built into search portals will deliver consumers with increasingly more relevant properties to view that tick their boxes and budget, potentially knowing far more about individual buyers’ property requirements and desires than an agent currently could in the limited time they have to get to know their clients.
Sale
If the role of the real estate agent doesn’t become completely disintermediated, it will certainly shrink or disperse into smaller pools of specialist services most suited to the human touch. Negotiation is still an area even the most tech-savvy consumers value real estate agents to support them with. For sellers that do want to work with a real estate agent (and it’s important to remember that this is still the vast majority of home sellers), there are now more options. Online agent matching services like HomeLight and Opcity in the US or OpenAgent in Australia help to connect sellers with the best agents to suit their varying needs, giving the consumer the ability to set their required support levels and see Uber-like ratings for each agent. Rumour has it Amazon might be about to set foot in the real estate matching space too.
Relatively new fixed-fee agent models save money on high-street office space to enable them to offer similar service levels at a fixed fee (rather than traditional commission). Purplebricks operating in the UK, Australia and the US is perhaps one of the most well-established examples of a fixed fee agency.
Taking a step further away from brick and mortar real estate agents, we have FSBO (For Sale By Owner) platforms that enable a DIY approach to property sales, although many of these FSBO sites (such as ForSaleByOwner.com, BuyMyPlace.com.au, Houzeo) offer plug-in standalone services like photography, staging, conveyancing to support the sale.
Finally, much further beyond the traditional brick and mortar agency approach, are a new breed of instant sales marketplaces. Real estate startups like Opendoor, OfferPad and Knock are offering a completely different sales experience in the age of instant gratification whereby they will offer a cash price online to buy the house outright, completing in between 3 and 90 days. This offer is based on property data, market conditions and any home improvements (verified by a home visit), and whilst it may not reach the kind of prices sellers could eventually get on the open market, they get a faster sale and increased certainty.
In the age of big and open data, the other area of real estate sales that is seeing change is property valuations. The traditionally ‘dark art’ of valuing properties is slowly being unpicked and coded. Increased access to previously hidden data (MLS data in the US for example), coupled with a wider variety of datasets and predictive analytics has seen a rise of startups offering online home valuations. Although Zillow’s Zestimates has been around for 10 years, new players are emerging that claim to have higher accuracy levels. HouseCanary and Mashvisor in the US, REalyse in the UK and REALas in Australia are all players to watch in this space, and with the use of aerial maps and drone footage to add to the big datasets we could see this dark art become more of an open science.
Management
I’ve talked about how the current real estate agent model is changing in the search and sale functions. There’s also a lot happening in the home maintenance and tenant management space. Now it’s not currently a huge revenue stream but some agents or brokers bring commission or have partnerships with home moving or maintenance service providers. Again, more consumer choice is available now in this space, and the surge in the online marketplace model (think Airbnb, Uber, Deliveroo, Airtasker) has brought with it marketplaces for home maintenance and services. In Australia, HiPages and OneFlare are great examples.
Probably the more significant impact on real estate agents though is in property management for landlords. Startups like Rentulations, Cozy and Mynd in the US, No Agent and Rentify in the UK and Leasi and Cubbi in Australia are helping landlords find and screen tenants, create contracts and manage rent. With the promise of lower management fees for both landlord and tenant, and more advanced technology solutions like mobile apps for tenants, this wave of property management services presents strong competition to rival traditional real estate agents.
I don’t think we’re on the verge of completely replacing real estate agents just yet, especially in the negotiation and management of the sale itself, but I can definitely see some aspects of the agent offering that will be squeezed and replaced. More consumer choice, more options for buyers and sellers, technological solutions to make the process faster, easier and more convenient is putting more control into the hands of the consumer. The percentage of sellers who are 100% comfortable with selling their home on their own through an app is still small, but increased choice, convenience and transparency will drive this change and make more people comfortable with switching some aspects of their home buying and selling away from the agents.
Portal land-grabbing
The third trend I wanted to talk about is the way major property listings portals are expanding their offering across the property value chain to increase the number of consumer touchpoints they’re present in throughout the entire residential property purchase/sale/ownership journey. Portals like Zillow and Zoopla have been expanding their empires across the value chain to go far beyond their original proposition of property listings and generating revenue through advertising fees.
Zoopla in the UK is an interesting example. A challenger to Rightmove, it has been making sideward moves to differentiate itself in the UK market. Now in addition to listing and viewing homes to buy or rent, Zoopla has expanded to become a one-stop-shop for residential property, allowing customers to also value their homes, invest in property (through Zoopla’s partnership with Bricklane.com), find a mortgage, an agent, conveyancer, energy supplier, removal firm, home and contents insurance.
The acquisition machine has been investing in a range of PropTech startups, including an online mortgage broker, P2P lending and neighbourhood data provider.
Broadening our financial services offering has long been a key part of our strategy.
Alex Chesterman, chief executive of ZPG
Just earlier this month it was announced that ZPG, Zoopla’s parent company, had acquired financial services comparison website Money.co.uk in a deal worth up to £140 million, broadening Zoopla’s financial services offering to include comparisons for financial products including mortgages, loans, credit cards and insurance.
Mike DelPrete wrote an excellent analysis of how property portals are expanding across the value chain, which included this rather handy visualisation of where those expansions are taking place and by whom.
Zoopla is visible as one of the most active property portals growing into adjacencies, although not visualised here (but discussed in the article) it has been really interesting to see the race in Australia between REA Group (parent company = News Corp) and Domain (parent company = Fairfax Media) over who can grab the most real estate land. Australia’s property portal duopoly continues to expand into more areas as REA and Domain broaden their offering. As an example, the two home services companies I mentioned before — HiPages and OneFlare — are part-owned by REA and Domain respectively.
I am watching with interest to see what journey the portals take to access arguably the most lucrative revenue pool in this space — mortgages.
