As you may have read in the Real Estate Crowdfunding 101, 102, and 103 articles, crowdfunding is a relatively new phenomenon that has changed traditional methods of raising capital for real estate investments. However, crowdfunding is just one piece of the larger picture: namely, that technological innovation is inherently disruptive. How has this disruption affected the world of real estate elsewhere?
Historically, the real estate industry—particularly the commercial side—has been slow to adapt to rapid increases in technological innovation. While other industries have welcomed innovation with open arms, real estate has not been so quick. However, the efficiency and success in other industries have inspired many property technology companies (dubbed “proptech”) to quickly rise in the real estate world. Although real estate has not caught up to other sectors quite yet, there has been a significant change in a relatively short amount of time. This article will discuss some of the emerging trends in the real estate industry spurred by technological innovation.
There are numerous databases available to the public for free. Previously inaccessible information about properties can now be found with a simple keyword search. Google Maps is especially relevant in the real estate sector. Gone are the days where people must visit a property to see what the surrounding area is like. Now someone need only type in the property address to view it and its surroundings. With the internet, governments have decided to post public information online, making previously hard-to-find information much more accessible. Maps, zoning information, property data, taxes, records, and transactions can now all be found online. There are even websites dedicated to general demographic information. For example, Data USA mines data from public websites and separates them into categories. Public databases make all parties more informed.
There are also real estate information companies that go more in-depth and are more organized than public databases. CoStar, for example, provides an exhaustive database for everything related to commercial real estate. They employ over 1,200 researchers that collect public information and make daily calls to brokers and owners. They also have 190 research vehicles and even an aircraft (called CoStar One) that crisscross the nation to gather data. This information includes photos, floor plans, property history, market analytics, sales comps, and development pipelines. CoStar takes advantage of public information and brings it into one database, but they also find information not available on the web. Real Capital Analytics (RCA), which tracks every single commercial real estate transaction in 172 countries, is another popular information company. They record key information such as parties involved, location, and property type. RCA even has its own price index called RCA CPPI that can show crucial market trends. Similarly, REIS uses this data to draw conclusions with predictive analytics. These predictions can project market trends and property performance, and identify the risk associated with particular assets. Although the internet has made some of this information public, information companies keep a competitive edge by making even the most buried information easy to access.
As detailed in Real Estate Crowdfunding 101, crowdfunding took off in 2012 when regulatory reforms were enacted by President Obama. Crowdfunding sites that are marketplaces use the internet to bring investors and fund managers together. Investors can look at the pre-approved site listings and determine for themselves which properties meet their investment needs. Some sites, such as RealCrowd and CrowdStreet, don’t charge investors a fee whatsoever, making their offerings extremely competitive. In addition, crowdfunding sites can be very specific in their offerings. Small Change, for example, focuses exclusively on properties that score a 60% or better on their “Change Index.” Crowdfunding has taken off in part because of the growing demand for real estate as an asset class in investors’ portfolios. Previously, most investors only had access to Real Estate Investment Trusts (REITs) but didn’t have any control over what specific properties were in their portfolio. With crowdfunding, more investors can make more deliberate and informed decisions.
With the rise of crowdfunding and real estate as an asset class, investors in the real estate industry are becoming more prominent. Thus, the need to manage investor relations and give investors their own portal has become critical. Software such as Investor Portal Pro will allow fund managers to upload their raw data and create intuitive dashboards. The investors can log in to view this data, as well as see the general outcome of their portfolio. Some companies, such as Groundbreaker, allow fund managers to expedite the fundraising process, quickly distribute reports to investors, manage paperwork, and track emails. The purpose of these portals is to keep investors satisfied, with the hope that they will invest more capital. Thus, investor portals are beneficial to both the investors and the fund managers themselves.
When properties are listed online, there are normally a few photos that showcase the property. However, photos are too static to convey to the buyer what it feels like to walk through a property. Enter virtual reality. Companies like Matterport sell high-quality cameras and software, allowing sellers to take their own pictures and create their own 3D tours. The tours are highly lifelike, making prospective buyers feel as if they are walking through the property. In addition, the software allows sellers to publish to other websites so that their properties can get more attention. However, if sellers want to stick to pictures, there are other companies that can help them. Boxbrownie, for example, lets sellers manipulate pictures however they like to make their properties look more appealing. They can change the background, add furniture, and even design floor plans. This process is called “virtual staging.” Even though sellers must disclose any photo manipulation, buyers can more easily visualize what the property could look like.
Blockchain technology is decentralized and encrypts data for a transaction. The encrypted data is public and not in the hands of one individual or organization. In the unlikely event someone successfully changes the data, the change is made public. Thus, using blockchain in a real estate transaction can have many benefits: it gives control to the buyer, builds trust between parties, and is completely secure. It also eliminates the need for a third party to verify and store the transaction, saving buyers and sellers both time and money. For example, ShelterZoom has affiliate partners that allow users to buy, rent, or sell real estate using blockchain technology. There is also software available that allows easy communication between parties, making the whole process more transparent and efficient. Many different real estate companies have emerged using blockchain technology:
- RealBlocks lets investors buy fractional interests in properties using tokenization
- SMARTRealty completes transactions on its listing platform with its own currency
Sales & Marketing Software
Sales and marketing has become much more efficient with the emergence of big data and predictive analytics. For example, ProspectNow gathers hundreds of data points each week on properties that are sold and determines which properties will most likely be listed for sale in the near future. It saves the sales and marketing team time and money by reaching out to people that are most likely to sell but haven’t actually put their property up on the market. On the multifamily marketing front, Remarkably is a portfolio performance software that uses data analytics to determine the effectiveness of marketing campaigns, models desired paths to goal based on asset strategy, and then offers dynamic performance reporting against targets. In general, these types of tools allow sales and marketing teams to work smarter, not harder.
Appraisers, lenders, owners, and buyers need to have an accurate idea of the value of their properties. Some companies, like ARGUS, are able to do this. When determining the value of a property, the economic models that determine value can hold different assumptions. ARGUS takes these assumptions into account and shows how these assumptions can change the value of a property. It can do the same thing for variables, running what-if scenarios for each situation. It can even use this data to determine the risk and/or opportunities associated with properties. Whether valuation software will put appraisers out of job or just be a useful second opinion remains to be seen.
Machine learning (the process of feeding data to an algorithm and getting it to learn on its own) is one way of achieving artificial intelligence. Real estate companies are starting to exploit this concept for profit. Opendoor, Zillow, and Offerpad all use machine learning to make money through home flipping: they offer to buy people’s homes, and then they sell them for a higher price. According to The Wall Street Journal, the entire process is done through machine learning algorithms; a computer tells these companies exactly how much they should pay for a home, and how much they should sell the home for. It saves both parties the cost of working with a real estate agent, and the process is a lot faster than before. The concept of machine learning is fairly new to the real estate industry, but it has already taken off.
Technology is being incorporated more and more into the real estate industry, albeit at a slower pace than other industries. But what does this change mean for the future? Although no one can say for certain, all of the technologies listed above share one common attribute: they increase efficiency. This newfound efficiency can have positive effects: it means less time spent on unnecessary or time-consuming tasks. However, the effects of innovation can go to the other extreme. If technology can do things better and faster than a human can, what does that mean for jobs?
The trend in the companies listed above is clear: their products could replace jobs through automation. The line between what can be automated and what can be done by a worker is becoming increasingly blurred. In the age of the internet, monopolies on information are difficult to maintain because companies and public databases have made information easier to access for everyone. Thus, in the future, key personnel (such as brokers and agents) will need to quickly adapt and effectively utilize these types of technologies to remain competitive. Although any drastic changes may not come for some time, the companies above show that innovation is here for the real estate industry, and there’s no reason to believe that it won’t continue.