Over the last decade or so, technological innovation has reshaped the norm in a number of industries. Banking, digital entertainment, travel, even the way we hail a cab–one by one, they’ve all undergone dramatic transformations thanks to tech-savvy entrepreneurs with a knack for upsetting the status quo.
One industry that has yet to experience the winds of change on a large scale is real estate but the tide is poised to turn. In the residential market, for example, sites like Zillow and Redfin have already revamped the way home-buyers access property listings. Real estate investing is also seeing a shift thanks to the rise of crowdfunding platforms like Fundrise and RealtyShares, both of which allow smaller investors access to the market.
With tech-loving millennials leading the charge among homebuyers, it’s safe to assume that further disruption in the real estate industry is inescapable. What’s behind it? It ultimately comes down to three key factors that are driving the trend.
Ten years ago if you wanted to buy a home the first step would be connecting with a licensed real estate agent to find out what properties were for sale in your area. Now, if a buyer wants to see what’s out there, they can get it all right on their smartphone. That doesn’t mean that buying a home itself is any easier, however.
While Zillow has developed an app that allows you to estimate how much of a mortgage you qualify for and what the payments will be, the same old headaches are still there in terms of finding a lender, applying for a loan and getting approved. Having to jump through so many hoops is a serious drain on time and hitting a snag can launch a ripple effect that slows down the entire transaction.
Finding a way to streamline the process is the obvious answer for both buyers and sellers alike. Uber is a great example of how it’s done. If you’ve ever booked a car service, you know that it sometimes requires a lot of back and forth with a dispatcher to schedule pick-ups and drop-offs. Uber essentially cuts out the middleman and puts customers in control of where they’re going and how they get there.
Applying that same principle to home-buying puts the focus on meeting the expectations of both buyers and sellers, rather than the process. When there are fewer obstacles to buying and investing, more consumers are going to be driven to the market. The end result is the industry as a whole benefits when it’s easier for homes to change hands.
A real estate agent typically earns a commission of 6% for closing the sale or purchase of a home. In the pre-Internet days when agents were the sole source of information about the housing market that may not have raised much of an eyebrow. In today’s economy, however, where wages have remained stagnant since the recession and home prices are once again on the rise, buyers are more focused than ever on getting their money’s worth.
It’s simply not enough anymore for an agent to pull up listings of available properties or walk buyers through a showing. To justify the commissions they’re pulling in, agents have to be able to offer something different that provides their client with unique value.
Open Listings is taking this to heart. The company is making it possible for buyers to secure properties without having to go through an agent. Buyers browse property listings, finalize their purchase and instead of paying a broker’s commission, they’re charged a flat $5,000 fee. When there are alternatives that make home-buying more affordable, agents are at risk of finding themselves phased out of the equation unless they’re willing to adopt a more proactive approach to their role.
Buyers, sellers, and investors want straightforward answers so they can make the most informed decision possible. Much in the same way consumers shop for anything else, from shoes on Gilt to student loan refinancing on Sofi, they expect transparency. Websites like RealtyTrac and Google have started playing with virtual tours, professional photography, big data and more. This means more interactions are taking place online versus face-to-face.
The long term effects are that property owners will have to provide greater amounts of information and realtors will be forced to change their strategies to connect with buyers. Improved access to digital legal and land records will clue the buyer into the history of the property, renovations and more. When buyers have more access to information the result is that prices, loan terms and expectations come much closer to “fair market.”
There’s no time like the present
The real estate industry in its current form is a prime candidate for disruption on several different levels. While there are a handful of companies that are shaking things up on both the commercial and residential sides, wide-scale change is what’s really needed. The question is, who’s going to step up and become the ultimate game-changer? The answer is anyone’s guess but with so many contenders in the field, one thing is clear–disruption is inevitable.