PropTech: Disrupting Real Estate

Some of the largest technology companies that have arisen in the past 15 years have been disrupters of society’s most deeply rooted industries. For example, the taxi industry, which started in 1897, was changed drastically by companies such as Uber and Lyft. The hotel industry, which was started in Japan in 705 AD, has recently been uprooted by Airbnb. That being said, the modern day unicorns are companies that are bringing technology and innovation to the worlds largest, oldest, and most lucrative industries. Venture capitalists are now looking for the next company to uproot a long standing industry. With an extreme influx of funding into real estate, it is not unlikely for technology companies disrupting the real estate industry to become the world’s next unicorns.

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Last year (2017), real estate startups received $3.4 billion in funding, which is five times as much funding that occurred in 2013. The rise of this funding can be attributed to the rise of the PropTech industry or real estate technology. PropTech encompasses the companies that are part of the digital transformation, both technological and mental, of the real estate industry. PropTech companies offer technological and innovative solutions that are completely new to the real estate market.

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The first PropTech unicorn, Compass, emerged in 2016, and since then, several others have come into fruition, including Homelink, SMS Assist, and Opendoor. Homelink, being a Chinese real estate platform, proves that PropTech really is a global phenomenon. Perhaps the PropTech unicorn with the most future potential is Opendoor, which has received $1 billion of funding at an over $2 billion valuation. Opendoor’s most recent round was led by Softbank’s Vision fund at $400 million, which was announced this past week. Opendoor was founded by Keith Rabois and Eric Wu in 2014. The company has simplified the process of selling a home by using data, software, and 50 human evaluators to determine a home or property’s value. Upon providing a valuation on a home, Opendoor will provide that value to the person selling their home. If the seller agrees on the valuation, then Opendoor will purchase the home, charging a 6.5% fee on average. Approximately 50% of valuations are accepted. Opendoor does have some restrictions to the homes it buys, however. It only purchases homes built after 1960 and homes that are valued between $175,000 and $500,000. Opendoor has purchased over $316 million of homes this past August alone.

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Opendoor is solving several problems, first of which being certainty. With the majority of home purchases falling through, Opendoor ensures that its customers will be able to sell their home for the value they agree on, without a chance of the deal falling apart. Next, Opendoor removes the need for a real estate agent, however, they do employ 100 agents in case the client requests one. By eliminating the middleman, the company makes the home selling process much easier for its clients as they only need to deal with the buyer, who is a trustworthy, easy-to-work-with company. Finally, Opendoor also offers flexible closing dates. This helps its clients as they can avoid paying double mortgages. Additionally, the company has acquired a home selling service, so they can move away from the traditional process of selling the homes they buy. It is clear that Opendoor is using technology to automate the home buying process, thus transferring the role of a real estate agent from an active negotiator to a passive advisor.

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The Opendoor business model is only one example of how PropTech is changing the real estate industry. Other companies such as Homelink allow you to control the different functions of your house from afar. There are also a variety of tech companies involved in rentals, sales, and development. The real estate industry is extremely dynamic, and therefore, it is likely more innovation is on the horizon. There has been a rise of services like Airbnb and WeWork, which promote shared living and co-working environments. Also, real estate payment processes are changing with crowdfunding efforts. With these new and continuous innovations in living and working spaces, the PropTech industry will only expand. Perhaps one of the most promising expansion opportunities of the PropTech industry is machine learning and artificial intelligence in the technology itself. Specifically within PropTech, machine learning has been implemented to forecast the future of deals, markets, prices, and the probability of a deals success. Due to the extreme amount of data and records within real estate, machine learning is likely to push PropTech to new heights at a rapid pace.

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That being said, it is clear that PropTech is infiltrating all sectors of the real estate industry and no member of the real estate industry is safe. Real estate professionals and leaders must begin to supplement their careers and firms with similar technology and innovation or they will end up far behind those who accept and utilize it. Just as the taxi industry was taken over by Uber, the real estate industry is being taken over by PropTech. And in order to remain relevant in the industry, professionals need to continue to innovate and use technology in their real estate practices.

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I am interested in this rise of PropTech because this summer I focused on real estate development at Suffolk Construction, here in Boston. Suffolk is a construction and real estate powerhouse in Massachusetts, and is rapidly growing to being a national company. Suffolk invests an incredible amount of time and money into developing new technology, and always staying ahead of its competitors. That focus on technology in the construction and real estate development industry was initially very surprising and interesting to me, but after doing research it is clear that technology is so crucial to the future of the real estate industry, and how its further implementation will disrupt the industry.

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4 thoughts on “PropTech: Disrupting Real Estate

  1. Great post, Frank! I love learning about new platforms and rising forms of innovation. I think the idea of “eliminating the middleman” is a concept that a lot of people are moving towards. My one hesitation, though, stems from an experience my family had this summer. We were supposed to move into a new house before we even closed on our old one, but there ended up being a lot of back-end issues with the new house we were going to buy. After months of waiting for all the paperwork to be filed and processed, involving a lot of human touch-points, we finally got the problem solved. However, the process caused many headaches and frustration. PropTech seems like it is eliminating human contact as much as possible, but what about if the companies run into problems with outstanding loans, etc.? Do you think this technology will become advanced enough to tackle that issue? Just a thought–thanks for posting!

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  2. To me it seems that technology has a recurring theme of cutting out the middleman, in order to make processes more efficient. In a way, Opendoor reminds me of cryptocurrency, where instead of cutting out the middleman bank or financial institution, Opendoor is cutting out the real estate agent/agency. I definitely agree with your closing remarks about technology at first being a surprise in the real estate and construction industry, however after more thought it makes sense that if major companies within this industry want to stay competitive, they need to adapt to technology. Awesome post!

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  3. Interesting post. Real estate is a bit of a puzzle, because it’s a market that *should* be more disrupted by tech. I guess when people want to make big purchases, they want the advice of a professional.

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  4. I really enjoyed reading your post Frank! Real estate has always seemed to me like a very traditional industry that has not yet been disrupted by technology. And therefore, I had never been able to come up with ways that technology could transform it, but clearly, you laid out several possibilities. I think that since real estate purchases are the largest investments most people will make in their life time there is some hesitation to innovate in terms of real estate processes, but eventually, I believe that changes will be implemented for the better.

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