Technology and real estate go hand-in-hand, yet many people have contended that the real estate industry has been lacking innovation for too long. However, that viewpoint has quickly changed over the last few years.
Lately, there’s been a lot of talk about tech companies “disrupting” the real estate industry norms. It seems like every day there’s some new tool, website, or app that promises to transform the industry as we know it.
If you work in the industry there’s a good chance you’ve heard the buzzword PropTech thrown around. It’s a term that didn’t exist at all just a few years ago, but what exactly does PropTech mean? Is it more of a threat or an asset for agents? And is it something all agents should be familiar with?
Here’s your ultimate guide to PropTech and what it means for the real estate industry in the near future.
What is Proptech?
You know how people love to mash together words these days? Well, that’s how the term PropTech was born. It’s a mash-up of the words property and technology.
At its most basic, PropTech means the utilization of technology to overcome challenges and provide solutions specific to the real estate industry. PropTech is new or revamped real estate tools that leverage the latest technology in some way with the goal of making services more efficient and effective.
PropTech is also used to classify startups that specialize in real estate technology, particularly those that offer innovative, new solutions.
James Dearsley, a PropTech thought leader in the U.K., provides this very basic and straightforward PropTech definition :
James goes on to add:
The idea of PropTech is all-encompassing. It includes residential and commercial real estate as well as building, home design, property management, and even city planning. And it isn’t just a U.S. concept. PropTech is a global phenomenon that’s impacting markets across the world.
That’s where some of the confusion comes into play. Michael Beckerman, founder of CRE. Tech points out that some people don’t really know what PropTech means because it is so broad. CRE Tech, on the other hand, is specific and self-explanatory. [hr] Michael Beckerman, founder of CRE.Tech [hr] In the minds of many people, PropTech is now synonymous with CRE Tech, RETech, FinTech and ConTech (construction tech) collectively. It’s a blanket term despite the fact real estate sectors are very different from one another. As long as it solves an industry problem or is made for people working in the real estate industry it’s considered PropTech.
Who Are the Major PropTech Players?
There are a lot (and we mean a lot) of players in the PropTech game, and the number is growing by the day. Below is just a small sampling of PropTech companies that are already making waves. In the coming years, hundreds more are expected to join the ranks.
You’ve got your long-running (as in 2016 and earlier) established PropTech players:
- Zillow - You can’t have a discussion about PropTech without mentioning Zillow. They’ve long been a big data user, but their latest venture is buying and selling homes a la Opendoor.
- Opendoor Labs - This “unicorn” PropTech company is dead set on changing the house flipping landscape by basically being an online source for homeowners to sell their house to the company.
- Compass - Compass was the first PropTech company to hit a $1 billion valuation. The online brokerage that aims to be the Amazon of real estate, is currently valued at $4.4 billion. CEO Robert Reffkin recently said the plan was to expand services to mortgage title transfers and moving services.
- SMS Assist - This multisite property management tool is designed to give managers a single-source platform for maintaining commercial and residential properties. The platform connects clients with technicians for real-time servicing. It’s being called the future of facility maintenance.
- Airbnb - We all know how Airbnb has transformed vacation rentals. It’s a frontrunner that has influenced a number of other PropTech models.
You’ve got your up-and-coming PropTech players:
- REAL - REAL is an online real estate brokerage that dubs itself a technology-powered brokerage. Online brokerages are gaining ground in markets across the country and REAL is one of the premier companies.
- CBRE Build (Floored) - Formerly known as Floored before being acquired last year by CBRE, the tech team helps businesses determine how much space is needed for a new office. They can also utilize data and 3D software to help design extremely productive spaces.
- WeWork - Commercial leasing agents are surely familiar with WeWork. The PropTech company rents out shared and coworking space directly to consumers. WeWork’s model is working - the company raised $500 million in funding in June 2018.
- RealtyShares - Real estate investing is more accessible thanks to the RealtyShares model. The company takes algorithm applications and applies the crowdfunding concept to real estate, allowing investors to buy in for as little as $5,000.
And you’ve got your new PropTech players that are expected to expand the concept:
- Bowery - Even appraisals are getting the PropTech treatment. Bowery, a big data and cloud computing commercial appraisal PropTech company, has been named one of the most innovative real estate companies of 2018.
- Flip - Flip is a one-stop digital shop for subletting. That’s right, even subletting has become a PropTech focus. With the Flip platform renters are qualified, payments are deposited, and documents are generated.
- HutHunt - This app takes the rental finding a step further by cornering the niche of helping renters find roommates. It’s kind of like an online dating platform except it’s pairing up people who will live together.
- Goodwin Real Estate Industry Group - Their new PropTech practice shows that the concepts are even trickling down to legal services and investment consulting.
[hr] Salil Gandhi, a partner in Goodwin’s Technology group. [hr]
What is the Future Outlook of PropTech?
As with all technology sectors, the future is never certain, but there is one expectation - PropTech will continue to grow. In the last few years, investors have targeted PropTech and are sinking a lot of money into it. Between 2011 and 2016 over $6 billion was invested in PropTech , most of which happened since 2015.
Investment in PropTech was three times higher in 2017. It grew from $4.2 billion in 2016 to over $12.6 billion last year . Clearly, PropTech is in the position to keep accelerating now that venture capitalists are willing to supply billions of dollars to fuel startups. It makes complete sense given how huge the real estate industry is and the seemingly limitless PropTech opportunities.
To put it another way, there’s money to be made, which means PropTech is going to expand rather than shrink.
Two applications that are getting a lot of attention right now are virtual reality and transaction flow. The latter is heavily reliant on big data and predictive analytics. Both big data and predictive analytics have been transforming industries across the board. They are two elements that can even direct PropTech development itself.
Online virtual brokerages are also having a moment right now. This is a PropTech change that’s actually geared towards helping agents. For agents that are already set up to operate on their own and simply need a brokerage for licensing purposes, an online broker makes a lot of sense. The commission split is more favorable and they still have online access to everything they need.
The Tech Savvy Buyer/Seller Factor
Home buyers and sellers are another factor that’s impacting PropTech. Today’s buyers and sellers are more tech-savvy than ever before. Millennials are quick to adopt technology and are very comfortable using tech tools to get things done - with or without the help of a service provider. As more Millennials become homeowners PropTech will become more prominent.
Many PropTech leaders note that consumer behavior and sentiment is a driving force behind the innovation. This is because PropTech is more than tools, devices, and services. It’s a movement that challenges how people think about how the industry operates. Consumers want ease and convenience. They want information that’s easily accessible. Those are things that PropTech promises to provide.
The new consumer mindset isn’t unique to the real estate industry. Education and banking are just two examples of other industries that are seeing major shifts because technology has changed consumer behavior and demand. Now that the mindset has changed there’s no turning back.
How Will PropTech Change Real Estate?
Some would say the bigger question is how won’t PropTech change real estate? Advances in big data alone are already creating huge changes in the real estate industry (including for PropTech companies like Opendoor), and it’s just one category of PropTech.
With today’s smart home locks, PropTech is poised to even change how real estate agents access homes that are for sale. That is, if you need to physically show a home to prospective buyers. Virtual tours aren’t just 360-degree images anymore. Soon strapping on a VR headset and “touring” a home from your current house could be the norm for buyers. Most people will certainly want to see the home in-person before buying, but virtual tours can help them decide if a property is actually worth going to see.
Many industry insiders expect that rentals will be shaken up by PropTech more than home buying and selling. There are already online platforms that are proving successful at connecting renters directly with landlords in both the residential and commercial markets. Flexible “space as a service” models from PropTech companies like WeWork are significantly changing how commercial properties are rented. Given that rental transactions are less complex, the sector is ripe for PropTech changes.
“Smart” homes have been a trend for some time. PropTech companies will continue to invest their time and energy into saving energy at home and increasing connectivity. It’s something that’s high on the priority list for consumers. Efficient use of space and “smart” building will also be a focus in the future as smaller homes become the norm and machine learning provides advice on living more efficiently. The changes will have a ripple effect for home builders and agents in terms of marketing homes.
The PropTech possibilities are boundless at this point. It’s almost impossible to guess exactly how PropTech will change real estate. Everything from general housing affordability in a metropolitan area to a single transaction in a rural community will feel the effects of PropTech. And as the innovation continues new technology will emerge that could prove to be as big a game changer as the Internet in the 1990s.
Is the Goal of PropTech to Help Agents or Replace Them?
This is a hotly debated topic in real estate. Some real estate agents are livid at the rise of PropTech companies that seem hellbent on disrupting not the industry but their livelihood. Others see many of the PropTech startups as potentially beneficial partners that can make their job easier.
Some experts believe that true PropTech isn’t about the tech world disrupting the real estate industry - it’s just the opposite. It’s technological tools that genuinely help real estate professionals and their clients while protecting against harmful disruption.
It all really depends on the PropTech company and what it’s offering. It often also depends on the market you’re in. There are two types of PropTech companies, which can have an effect on helping or hindering agents.
Endogenous PropTech - Endogenous PropTech is developed by companies that are within the real estate industry. Companies that are already part of the industry tend to be more inclined to focus on innovation to improve the current processes.
Exogenous PropTech - Exogenous PropTech is developed by companies that are outside of the real estate industry. These are the companies that are more likely to take a disruptive mindset and want to really shake things up in the real estate industry.
The overall goal of PropTech isn’t to necessarily replace agents. Remember the definition way back at the beginning? The goal for most companies is to innovate the real estate industry through technology.
Some PropTech Companies Are Competitive, But . . .
That said, there are some startups, like No Agent in the U.K. and Open Listings in the U.S., that are clearly attempting to circumvent at least part of the agent equation. And of course, Opendoor is trying to cut out agents with their business model.
While these PropTech companies may make sense for some buyers, sellers, and renters they actually highlight the need for real estate agents in many cases. Opendoor has been called out for making low ball offers that are well below what a homeowner could get using an agent. They also charge fees that are similar to agent commissions. The only real benefit for homeowners in Opendoor markets is they may be able to get a quicker offer.
PropTech for Industry Professionals
Most PropTech is focused on creating tools that agents can use. Therefore, many PropTech players aren’t looking to replace agents. These companies benefit when there are more agents selling homes.
Drones are a great example. Drone technology has been catapulted forward by real estate agents. Aerial shots that were once reserved for multi-million dollar estates are now possible for virtually any property. Now there are tech companies that specialize in real estate drone photography and services.
Robotics is another complementary field. There are robots that are already being used by New York agents to show properties when clients can’t be there in person. These robotic real estate partners expand what an agent can offer their clients.
New construction is a real estate sector that’s seeing benefit from PropTech. Virtual reality startup companies are definitely making it easier for home builders to sell properties by helping homebuyers visualize homes that don’t yet exist. It makes total sense that PropTech can’t completely disrupt home building because there’s no getting around the need for construction (even if 3D printing becomes part of the process). But designing, staging, and selling new homes - there’s plenty of opportunity for PropTech influence.
The truth of the matter is, PropTech companies are exploring all facets of the real estate industry, and some of them don’t care if they move in on agents’ business. By and large, many of the PropTech innovations are supportive rather than competitive. There are hundreds of PropTech companies, and very few are attempting to reinvent the industry as a whole in a way that cuts agents out of the deal.
Should Agents Embrace PropTech, and if so How?
There are always going to be people who like their current way of doing things and are slow to adopt new solutions. Ultimately, history tells us that agents who don’t embrace innovation quickly get left behind. For those that remember the early beginnings of the Internet, you may recall people had similar concerns back then about the World Wide Web.
Today, the Internet is seen as an essential tool for real estate agents. In all likelihood, the same will be said about PropTech in coming years.
The real question is not whether agents should embrace PropTech, but how can they use it to enhance their business? Another million dollar question is how agents will convey their value to leads and clients in a time when there are PropTech companies claiming to offer the same services in a better way. So, how will you meet the clients evolving needs better than a PropTech competitor?
The answer could very likely lie in PropTech solutions that support real estate professionals. Use PropTech to your advantage by:
Staying up-to-date on the latest innovations. It’s important to be at the forefront rather than running behind, especially when you have clients that may be familiar with PropTech themselves. Agents need to understand not just PropTech but the Digital Transformation at large that feeds into real estate technological changes. Doing so will give you a better idea of what’s on the horizon, help you field questions from clients and better meet their needs.
Using PropTech tools. As mentioned above, many PropTech companies aim to help make an agent’s job easier and more productive. Start exploring some of the latest tools to see if they are something that makes sense for your business.
Focusing on client-centered PropTech. Focus on the PropTech tools that enhance client services and make the home buying/selling process easier for clients. This will help to counteract the advantages of PropTech companies that are looking to replace agents.
Talking with other PropTech adopters. Ask the tech-savvy agents in your office what they think of PropTech tools, startups and new innovations. They can give you another perspective and help you decide which tools are worth trying.
Hitting on the human factor. At the end of the day, real estate is an emotional industry. Algorithms and online tools may make things easier for home buyers and sellers, but they can’t replace the human element that agents bring to the table. PropTech that helps you communicate with clients and manage the emotional elements of the process are a definite benefit for agents.
PropTech can’t simply be ignored. It’s here, and it’s here to stay for the foreseeable future. Being complacent or trying to act as if PropTech isn’t a factor could end up being the most costly mistake for agents. If you doubt that, ask taxi drivers how they responded when Uber first pulled into the parking spot next to them. Many will tell you they wished they hadn’t simply shrugged off the newcomer with a competitive business model.
Innovation is ingrained in the real estate industry. Agents who accept the reality and find a way to leverage PropTech rather than fight it will enjoy job security.