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How tech innovation is changing real estate

These trends can help you identify where to invest

Lessons learned from investor by Alex Roizen
January 12, 2018
Short URL: http://vator.tv/n/4a6f

Advancements in technology have brought the demise of many outdated business models, paving the way for more efficient processes, higher industry standards and new dominant players. Real estate is no different.

Across the board, we’ve seen entire sectors turn on their heads and incumbents overtaken by more innovative companies. Tesla is valued at $59 billion vs Ford at $49 billion. Amazon at $624 billion is twice the value of Walmart at $300 billion. GE is valued at $165 billion, less than a third of Facebook at $522 billion. There’s never been any mega real estate companies to invest in beyond REITs (real estate investment trusts). But that will change, as we’re starting to see new real estate tech companies go public and receive financing.

Invitation Homes IPO’d earlier last year and is now valued at $11 billion. Zillow is $5.6 billion. Of course, there’s also the biggest real estate disruptor: Airbnb, which is valued at $30 billion in the private market.

Real estate is on the cusp of changing substantially over the next decade. Currently, there are more than 1,500 real estate tech companies in 12 categories across 62 countries, with a total of $37 billion in funding, and that figure is growing annually. 

This shift will affect jobs, skills and overall business practices used today, raising the questions about the impact on traditional business models as well as the new solutions being ushered in.   

As someone who owned a real estate company in a previous life, and actively buys real estate properties as investments, it’s a fascinating time for me, particularly as I’ve seen how new tools are making my job far more efficient. I also don’t typically use real estate agents, but in one particular situation I did, which triggered me to write this piece.

My goal is to retrace the steps of the transaction and explain how it can work with or without an agent. In so doing, I'll also identify alternative tools and platforms I’ve found along the way that you can use to fill the agent’s void.

Finding the property

If you want to buy or sell a property, you’ll typically start by hiring a real estate agent to manage the process. In my case, I’m looking for an investment property so the bottom line numbers move my needle more than the location, layout or feel. Since most agents are only experts in their immediate area, I started my search with AirDNA.co.

AirDNA aggregates sales data from sites like Zillow, then merges it with rental data from Airbnb to generate elaborate research reports on short-term rental markets. The reports offer revenue, occupancy and profitability charts, monthly revenue, ADR and occupancy predictions, and it’s all automated. What used to take me weeks of digging and number crunching is now whittled to $50 and a few clicks. Side note: If you’re raising money or have investors, the charts and graphs are especially helpful in generating presentations.

After running the AirDNA reports I settled on a city. I called local property management companies to confirm the findings and narrow my scope. The area I chose was full of HOA developments, so based on immediate location, fees and CC&Rs (rules), golf courses, I chose a few communities that fit my criteria. Most of the property management companies I spoke to had a better handle on the community HOA rules, specific areas (schools, restaurants, popular activities), then many of the realtors I spoke to. Since I need to hire a management firm after close they were happy to talk to me for the possibility of future business.

It was at this point I engaged a realtor. The realtor will set you up with an MLS feed so you can see what’s available on the market, which is basically the same info found on Redfin and Zillow these days. They also allow virtual walk-throughs, so investment hunting from your desk (or 500 miles away) is an option. Next steps:

  1.      Estimating value: Determining value used to be an important part of a realtor’s job. You don’t want to list your home on the MLS too high or you may scare away potential buyers. Too low and you could undercut the value and leave money on the table. Today there are so many portals for valuing real estate (think Zillow, Redfin) most everyone knows the value of their place +/- 5% margin of error. There are even platforms that allow you to accurately predict the future resale value of a home, before buying it! Check out HouseCanary. Most of this software is built for appraisers and real estate investment firms, but it has a free lookup feature for residential properties on the homepage.
  2.      Pictures: Since the entire business has moved online, the online search is the new caravan tour. Your online presence is more important than ever, otherwise buyers like me may never pick up the phone. In fact, this is so important as a seller you might consider outsourcing this portion of the process to a professional photographer or media company that has all the tricks up their sleeve to make potential buyers swipe right on your listing. The key to utilizing today’s technology is understand all the tools at your disposal; wide angles lenses, 360 cameras, virtual walk-throughs, drone footage, voice overlay video tutorials, and much more stuff I’m unaware of. A recent study from the National Association of Realtors revealed that 92% of buyers use the Internet to house hunt. Some companies offering the services mentioned above: (Floored, Start VR, SDhoc Studio), drone footage (ZAW Studios), clever marketing videos (Clever marketing video)
  3.      Access to the property: Now that your first impression took place online (not via open house or yard sign), by the time you have people over for a physical walk-through, their interest has already been piqued. The internet makes the sales/identifying process more efficient for both buyer and seller by reducing the number of unnecessary showings and wasted trips. Electronic lock boxes allow access to the property and generate unique codes for each entry, meaning you really don’t need a realtor (or anyone) to gain access to a property. The unique ID code provides recourse and a follow-up identity in case anything is missing, damaged or otherwise.
  4.      Buying the home: You’ve found your home (or buyer) – congratulations! Now time to get the financing. Between the down payment, title/escrow and loan fees, you will quickly find out the fees associated with a loan are not pretty. There are many companies working to combat this process, like Morty. Morty aims to provide borrowers with more options and transparency while loan shopping, think Kayak or TripAdvisor when booking a flight. While Morty is a rather early stage company, there are platforms like LendingClub and PeerStreet which are working to take lending power away from the big banks, and put it back in the hands of the people, or as they would say “where Wall Street meets Main Street.”
  5.      Owning and managing the home: Once you own the home, there are a million platforms to support management. NextDoor is a private social network for homeowners in your neighborhood, dedicated to keeping owners informed on what’s going on in their immediate neighborhood. The sharing economy is also playing a big role in why people are becoming homeowners in the first please, like me. People are more comfortable sharing their stuff: homes, cars, transportation… even investments. DivvyHomes Divvy allows renters and future homebuyers to leverage the benefits of homeownership right away. They buy your future home on your behalf, so you can lease it while building equity every single month (essentially a lease-to-own). Expedia’s 2015 $3.9 billion purchase of HomeAway (VRBO) was a big step towards revolutionizing the way people travel as traditional travel sites are now beginning to list privately owned vacation rentals alongside hotels and resorts. 

We are at the beginning of a long-term trend towards the democratization of lodging and hospitality.

The sharing economy is estimated to grow from $14 billion in 2014 to $335 billion by 2025. This estimate is based on the popularity and rapid growth of Uber and Airbnb. When private vehicles and second homes go unused for 95% of their lifetime, it’s no wonder people are starting to leverage third party sites to produce side income. And this is good for borrowers and renters alike, as Airbnb estimates rental rates are 30%-60% cheaper than hotels on average (although I’ve noticed that most hotels have dropped their rates accordingly), that said, the market has also eliminated the potential for monopolies and price gouging during surging times. It’s also paved with way for many followers like VRBO and now Vacasa.

As for the fate of the real estate agent, I’m unsure. I believe there is always room for exceptional performers… but as cheaper, more efficient alternatives begin to flood the market, the herd will surely thin. Startups like Savvy Lane help reduce broker fees. There's Homelight, which is focused on helping home sellers find the best agents in their area. Concurrently, GoldenKey wants to change the way real estate agents and clients do business. Typically, as a buyer or seller, you work with one agent who then gets a 3% commission when the transaction closes. Under GoldenKey’s model, instead of a commission you pay the agent a flat fee for the services you need, then get a 3% rebate at close. And then there are companies like OpenListing and OpenDoor, who enable buyers to purchase homes without agents all together. So, there are options.

I think there will always be room for a great salesperson, a person that more than pays for their own expense, one that adds value to the transaction. But, the part time, throw it on the market and wait for my 3%-6% agent will slowly become extinct. We will see a decline in the usage of realtors starting with investors (investment properties) that are working with tighter margins. Or, maybe we will see a decline in the fees of the realtor to the point where it makes more sense for their scope of work.

I wrote this piece in part to share my thoughts and experience and pass along some of the more interesting companies I’ve encountered along the way, but most importantly (and selfishly) in hopes you’ll respond with other innovative platforms and services I’ve missed.

Image source: Quora