Those who know me and work closely with me know that I’m no stranger to spending (wasting) money on strange tech plays in the real estate space. My experience with it has given me a healthy dose of skepticism towards the idea that real estate will get an “uber” – that being a completely peer-to-peer transaction platform.
My thesis is that an Uber of real estate could happen by consumer consensus through gradually removing agents from the transaction. Unfortunately, the infrastructure available to consumers perpetuates the principle the brokerage was founded upon: information asymmetry. We won’t see an Uber of real estate until we’ve properly addressed the information system (MLS), its underlying infrastructure (real estate boards), and legislative environment (brokerage, land registry & title conveyance). If and when that infrastructure has adapted to the demands of consumers, consumers will finally have the freedom to decide whether or not to exclude brokers from the transaction without it being detrimental to the outcome and security of their transaction.
Furthermore, I believe we are already seeing an Uberification of real estate, which manifests in a race-to-the-bottom phenomenon, where agents strip out as many tasks as they can in order to protect the bottom line in a declining-fee environment. Those who use price as a competitive advantage see marginal success. Pricing is a competitive advantage. Price is not. Those who succeed in this market focus on real competitive advantage: we call these AutomAgents* – those who automate tasks and focus on the skillset realtors are designed for – critical thinking and fiduciary duty.
I’m going to try to unpack this concept with a few observations and present them as factually as I can. It’s hard not to let opinion or conclusion run riot on this one since it’s a conversation I have regularly with people who want me to draw conclusions about it: clients, VC’s, business partners, and investors.
The Perfect Platform
First, I think it’s important to evaluate what, in a perfect world, the Uber of real estate would look like. From my perspective, this would appear as a robust marketplace/product-browsing UI that would allow sellers to advertise properties and buyers to interact with said properties, inclusive of every interactive component necessary to purchase a home. Basically, you need a start-to-finish buying and selling platform, which requires:
- A marketplace/product UI such as Zillow, Realtor.ca, (even instagram allows listings now, although we haven’t managed to patch in live listings). In this space, you will see many faux-UI attempts that are actually brokerages, which is due to the legislative environment, requiring someone to be a brokerage to market product properly, and furthermore, in order for platforms to onboard listings via traditional MLS through IDX/VOW/RETS/etc to solve their chicken-and-egg problem (see next heading).
- Front-end underwriting – automated valuation, regression, and understanding of value and the role of pricing in the marketing of properties, some sort of real-time tie-in to market trends, and ultimately, a control for the skill that brokers should be paid for right now: critical thinking.
- A property/due-diligence exploration platform – from a marketing perspective, this has big opportunity for VR/AR interactive tie-ins. Beyond product-specific, a GIS play for clients to investigate properties in a centralized fashion, i.e. title, zoning, planning, conservation, EPA, etc. This is a huge critical thinking + legislative hurdle that even government GIS has trouble with, but the infrastructure is available at each regulatory body to be aggregated.
- A booking engine for individuals to book showings directly, or a 4-party consensus mechanism (buyer, buyer broker, seller, seller broker) for schedule agreement. Multiple iterations of this exist already. This would also have to automatically collect feedback, which also exists already.
- A form-authoring platform for individuals to automatically populate paperwork to offer and negotiate deals. See Webforms, Dealtap, RIP Quickoffer.
- A signature platform – see docusign, authentisign, etc.
- A negotiation/chat platform to negotiate said deals, keeps a paper trail of negotiations which is a competitive advantage against current environment.
- A inspection/due-diligence management platform – again, prospective tie-in for inspectors in existing and future VR/AR, especially with thermal imaging.
- A twofold financing platform – 1) consumer underwriting – currently being executed by RBC’s 30-second approval and others, but housed by Filogix, FSRA, FSCO infastructure, etc. Would require API’s from Equifax and/or Transunion for automatic credit-checking, then Filogix or other for compliance. 2) deal underwriting – automated property information inputs.
- Legal Review, Title Search, & Conveyance – we’re seeing more brokers bow out of final review, opting for a lawyer-review clause. The platform could use AI to review and highlight, but ultimately, rollout is going to require lawyers to stay in the game until an AI can phase them out.
One of the big challenges we see with the current suite of technologies is that they don’t function exceptionally well together, so agents assemble them in their own piecemeal fashion. Furthermore, adoption is slow, given that the groups of consumers (buyers/sellers) outside of the industry, have yet to experience a meaningful capital migration that would buy the majority of the buying power into the hands of the generation that will actually benefit from this stuff. Basically, boomers still reign supreme, and they’re a little slower to adapt.
The Chicken and the Nest Egg
Essentially, every necessary technology in the purchase and sale supply-chain exists for a P2P platform to exist already, but yet we still see no successful singular platform. There have been many attempts, but they all reach the same chicken-and-egg problem with supply and demand:
- In order to attract buyers, you need listings, which requires a ton of traditional sales and marketing dollars, or the more simple solution of scraping MLS for existing product via DDF/RETS/VOW/IDX (do I have to explain the irony?).
- In order to attract sellers, you need buyers, which… well, see #1.
When a platform ultimately ends up relying on a traditional MLS to substantiate its value in the market, it’s really not that innovative, it is functionally a realtor IDX website with a techy brand and a bigger marketing budget. When heading toward the primary objective of income generation, it leads the platform down an all too familiar route of lead-generation, making them functionally identical to realtors on the front-end. Some of these platforms sell the leads to qualified brokers. Some try to handle the leads themselves by behaving like a brokerage. None, from what I’ve seen, use the leads as a market validation tool to discover how they can simplify the buyer or seller journey.
Land & Expand
We’re currently seeing a marketplace in which major tech players have an established base customers on their products – players like Lone Wolf, Top Producer, and the like.
We’ve already got a peer-to-peer transaction system, and it’s called the MLS. You can go list your house with Purplebricks or Propertyguys, and someone can buy it directly.
Consumers are already communicating their desire for lower fees through negotiations with the existing stakeholders. A lot of this has to do with the increasing commoditization of the asset, and supply scarcity putting upward pressure on housing prices and downward pressure on the amount of marketing required to sell a home. The challenge is that in a declining fee environment, you move from asymmetrical information to asymmetrical diligence. As agents, we are actively creating an imbalance arbitrage where, in most cases, one agent gets to do less work than the other. If you’re the agent doing less, you’re the kick-back agent. You are the Uber of real estate.
There are other iterations of peer-to-peer arbitrage models happening, much to the detriment of a lot of agents out there. Here’s an example. I had a property listed a few months ago. An agent called me to register an offer, though they’d never shown the property. I inquired as to why, they mentioned that their client “came through the open house” – it was a commercial property, and I hadn’t done an open house on it. Upon further investigation, the client just saw it with another, unsuspecting buyer agent. The offer came in pretty strong, and was accepted promptly. When it came time to inspect, with 24 hours notice, the buyer agent, who had still not seen the property, asked me if I could “let the inspector and client into the property”. At this point, I frankly lost it and told the agent that I’d do that if he was willing to give me 50% of his commission, since I’d already done more of his job than he did. This is the kicker – he couldn’t make the deal work because he was giving his client back 75% of the commission.
If you’re doing your job better than you were before because you know how to leverage technology – you’re a CARE agent, using Computer Assisted Real Estate, and this is the divide I see in the market. There is a demand for a discount, and there is still a demand for good quality service. I work with investors who never bat an eye at my fee because I can substantiate the value I’ve delivered to them in a variety of ways, be it a better price, a better return, better terms, or a safer transaction. I deliver this value through expertise and technology.
Some agents have to buy their clients, and that’s fine, too, because they often have to work less. The fact is that either of these cases clearly communicate that brokers are adapting to what the market is demanding, and we’ve actually already reached an equilibrium with the current role technology is able to play in that market.
Things can and will change as we start to see bundling or aggregation of those existing technologies, and that’s what I’m excited to watch. If you’re a professional in the real estate space and you haven’t established a concrete competitive advantage against technology, critical thinking is a great place to start.