Innovation in Real Estate: Why PropTech is Disrupting a Traditional Sector
Posted by | Fuld & Company
Taking home buying and selling online creates opportunities for new entrants: how should long-standing players respond to PropTech so they don’t get left behind?
There are few industries spared from disruption created by technology innovation–and the fact is disruption is everywhere with new technology solutions popping up at breakneck speeds. It’s hard for companies to keep up, but there’s good news. Easy-to-use technology options equipped with on-demand responses are what consumers want and every sector from retail to healthcare is evolving to meet these consumer needs and expectations. It’s no surprise modern consumers are accustomed to on-demand, tailored, tech-enabled solutions thanks to the bar Amazon and Google have set. Yet, not all industries have been quick to adopt change and embrace technology; especially those that have relied on high touch customer service and interpersonal relationships for success. It may be surprising to learn that property, one of the largest asset classes, has earned a reputation as one of these slowest-to-evolve sectors.
Despite real estate’s tortoise-esque history, the sector is quickly undergoing a transformation driven by tech savvy consumers’ preferences and the emergence of PropTech startups. “PropTech”, short for property technology, is a term used to describe the digital revolution hitting real estate which moves key parts of the real estate process online—from browsing, to bookings, to closings.
For decades, a real estate agency’s success depended on trustworthy relationships and solid personal networks with relatively little thought about consumers’ evolving digital behavior and preferences. The live connections agents and brokers made with buyers and sellers were linked to profits and transaction volume. As a result, the industry placed a lower priority on automation and innovation. While there have been incremental digital advancements, like the development of popular search platforms like Zillow and Trulia, much of the real estate transaction process has been left relatively untouched by major disruption. However, we believe that as consumers increasingly value experiences, transparency and responsiveness, real estate will be challenged to strike a balance between relying on human-based relationships and implementing technology solutions that meet consumers where they are.
Who are today’s real estate consumers and what do they want?
Clever Real Estate conducted a survey with over 1,000 potential homebuyers—half of whom are millennials, to determine how homebuyers are carrying out their research in the homebuying market today. The survey revealed that there is indeed a demand for both human-relationships and technology today— 82% reported they wanted to work with a trustworthy agent and 63% named their cell phone as the primary tool for garnering home data. The survey results point to a data-informed customer who is digitally connected, but wants an agent as part of the process, too. While most real estate companies have the agent and broker piece of the puzzle solved, they are still struggling to decide where to add PropTech.
It’s no secret that companies are striving to offer personalized experiences as a way to achieve stickiness or customer loyalty, but many companies fail to harness technology effectively to do so. Mostly, this is caused by a “disruption won’t happen to my industry” mindset. Not taking notice of consumer behavior trends could negatively impact an industry’s bottom line, so it’s wise for real estate companies to take notice of external forces (including consumer behavior) driving demand for PropTech.
It’s important to point out that “disruption deafness” is a common ailment for storied industries but seizing opportunities during change results in exciting new offerings. For example, for years, many surmised that the automotive industry would always include in-person transactions and be based on relationships, but that too has changed in recent years.
With companies like CarGurus which offers pricing and dealership data online, and Carvana, which aims to be the largest “screen-to-home” dealer, shoppers need to physically arrive at a dealership only to perform test drives and sign paperwork. Test drives, too, may ultimately be replaced by augmented reality with companies like Mark Cuban’s Car360 (recently acquired by Carvana) offering digital vehicle tours and 360 degree vehicle views.
These new automotive industry entrants not only make purchasing a car more efficient, they are placing much of the process in the consumer’s hands. Much like automotive, as PropTech gains momentum, home buyers, sellers and renters alike will own the real estate process—and do so from their mobile phones and computer screens.
How will PropTech transform the user experience?
New entrants such as Opendoor, which moves the real estate process online, aims to simplify the real estate experience by taking listings and closings digital, eliminating the need for a middle-person. Companies abroad like Purple Bricks, focus on bringing transparency to the real estate process and empowering customers by offering solutions for each stage of buying and selling— this service itself is altering the way agents themselves conduct business. Opendoor and Purple Bricks are setting precedent in the space because they’re proposing solutions to real estate’s most familiar challenges— mostly caused by laborious and murky processes that alienate buyers and sellers. The advantages these solutions bring consumers are enormous, and simply put, PropTech:
- Digitizes workflows and brings solutions to lengthy paperwork processes;
- Promotes increased transparency around financial transactions;
- Reduces costs by cutting out superfluous paperwork
While PropTech’s attributes indicate a promising future, it’s not the only threat traditional real estate companies should be eying. In fact, the big tech behemoths have also hinted at entering real estate.
Amazon hinted that it could be rolling out a ‘Hire a Realtor’ feature and expanding into real estate referrals. Amazon’s 2017 move directly threatened Zillow’s stake in the ground, and although Amazon has since removed the page, there are signs that its entrée into real estate isn’t over. It partnered with Lennar, the nation’s largest home builder, to create ‘Amazon Experience Centers’ in an effort to promote smart homes enabled with Amazon devices. While Amazon’s foray into real estate and real estate development remains unclear, it’s critical to not ignore Amazon’s vast number of resources that enable it to enter any market at any time. Waiting until Amazon, or other large tech companies, enter real estate before addressing this threat could put market players in a tenuous position.
If Amazon’s activity is any indicator of future outcomes, brokers and agents will have to slay bigger competitive dragons like Amazon and Google in the not-so-distant future.
Therefore, what should traditional real estate players do to remain relevant and competitive? Prepare for the disruption that is ahead and asks the right questions to ensure they’re well-equipped to address potentially impactful changes to their current business model.
Key questions to ask as real estate undergoes a transformation
While technology innovation is exciting, it can also be painful for unprepared companies to operate in an unfamiliar environment. Therefore, today’s market players need to ask themselves tough questions:
- What is our strategy for adapting to an increasingly digital savvy consumer? How can we deploy innovative technology and properly blend it with our high-touch in-person services?
- Are we behind or ahead of the technology curve? How can we improve our position?
- How might our business model evolve in the future?
- What will the role of deep, personal relationships be in a business that is focused on providing an efficient, high-tech experiences?
- What resources and capabilities are needed to deliver on this mission?
- How do our investments in technology penetrate the value chain?
Companies that are flexible and open to the ongoing power shift in real estate can more easily identify their competitors; whether that competitor is a known agency, an emerging PropTech start-up, or a larger technology entity. Disruption creates opportunities and new markets—two themes agents and brokers themselves are familiar with. If traditional entities can strategically balance their reliance on brokers and agents while integrating with emerging technology, they’ll be better equipped to handle disruptive forces on the horizon. Overall, it’s important real estate players re-evaluate their competitive strategy ahead of the omnipresent changes PropTech brings to the sector.