Tech companies want a piece of the real estate pie. Amazon. Zillow. Opendoor. Rex. It seems like every week there’s a new company announcing its venture into the game. Here are some things swirling through my mind as I think critically about this trend.
1) Stress & real estate hold hands: Tech companies talk about real estate like it’s as easy as the click of a button, but it’s complicated because humans are involved. There are real people trying to negotiate, advocate for their interests, and navigate complexities in the housing market. Can we make things less stressful? I sure hope so. But are real estate transactions innately stressful because of all the moving parts? Probably.
2) The obsession with speed: There is space for escrows to be faster as tech firms say, but I hope we don’t lose sight of the importance of time. It’s okay to have space for necessary inspections, negotiation based on those inspections, and a reasonable contingency period so buyers and sellers are sure about their decision. There’s this idea that real estate should be instantaneous, and maybe one of these days it will be on the blockchain, but mistakes are easy to make if we go too fast. On that note, let’s be cautious about expecting too much from appraisers in this climate because speed can water down quality. Do you know what we need more than fast appraisals? Reliable appraisals.
3) The fine print: A company like Opendoor or Zillow can offer to buy a house at a price that seems reasonable on paper, but it can quickly become low when money for repairs is skimmed off the top – not to mention a higher commission than what is being paid during public sales on MLS. This is where sellers need to weigh how much they’re going to net with a tech company’s offer.
4) The narrative of convenience: Big brands are trying to capture consumers with the idea of making transactions easier. This sounds amazing and consumers certainly want convenience, but in my mind the bigger issue is money. Sellers want the highest price possible and buyers want to pay the least amount possible. I wonder at times if this idea is getting lost in the midst of clever marketing. Or are we as a society starting to value convenience more than anything? To be fair there is a segment of the market that will sacrifice profit for the sake of convenience. How much of the population will do this? We’ll see. The market gets to decide.
5) Models change: We no longer go to Blockbuster to rent videos, we use Google Maps instead of the Thomas Guide, and when booking a vacation most of us don’t use a travel agent. Thus when it comes to real estate, let’s expect to see change in the future. I’m not saying tech companies are going to take over and humans will lose to Skynet (a Terminator reference). But for anyone working in real estate, it’s a good idea to watch this trend, listen closely to the narrative being spun, show your value to consumers, and try to think ahead of the trend so you can position yourself for the future.
Anyway, that’s what’s on my mind. I hope that was helpful or interesting.
Bubble story on CBS: Yesterday I was interviewed for a piece on CBS Sacramento about Sacramento home prices being similar to the peak in 2005. Check it out if you wish. One quick note. The reporter said, “Have no fear” in the story. I wanted to clarify that those were not my words.
Questions: Which point resonates with you most? What did I miss? What are you most and least excited about with tech companies in real estate?
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The guy in charge of Zillow also was at expedia I am told. Expedia ran off most of the travel agents….am wondering if we are at the cusp of some very major changes (along with a lawsuit regarding commissions). Curious how NAR is silent on this….
Thanks Mark. There’s a viable concern here with big companies coming in to the real estate space. We have to respect capitalism of course, but when does a company become too big? I think many are starting to ask this about Amazon in particular.
Amen Mark, CAR and NAR’s silence on the lawsuit is unbelievable and frightening. Makes me feel good about paying those dues!
Does anyone know why they are being silent? Are they legally bound somehow to not talk?
Outstanding writing. All of your content is good Ryan but an extra gold star for this one. Forward-thinking and well executed. I could not have done better myself!
Thank you Mike. That’s a huge compliment. I know how precise you are about words and grammar too, so thanks.
Great thoughts as we see more and more technology in real estate. Amazon Prime has taught us that speed and convenience are driving factors in the use of technology in our day to day lives. You make some great points about speed decreasing the reliability of appraisals. Also, do consumers really know how much they are really paying (giving up) for convenience?
Thank you Shannon. Those are excellent questions. If society values convenience more than the fine details of finances and how numbers really work, then that’s just the way it is. Call me old school, but I’m counting the numbers – even the small stuff.
By the way, some tech companies don’t call it a commission. Instead they call it a fee. That way they can say, “Hey man, we’re not charging commissions like the real estate community…” Clever marketing, but how do the final numbers line up? The bottom line matters. At least to me.
I am selling a house to Opendoor. They have been very transparent about the fees and costs associated with it. I did the math for my home and it balanced out based on the holding costs of selling the traditional way (60 days with risks of it falling out of escrow).
Yes, I theoretically leave a few thousands dollars on the table, but I have the peace of mind of selecting my closing date (as soon as I move out next week) and the process being very smooth.
Reached out to a contractor to do the repairs that Opendoor wanted and his bud came in much higher.
Not sure where the animosity is coming from for these companies.
Thanks Ceasor. I appreciate hearing your story. There is definitely a place for tech companies in real estate as shown by this example (and hopefully after reading my post people will get this also). There is no animosity in my post regarding these companies if you read closely. I am talking about trends in the market and this is a objectively a viable trend to discuss. It will continue to be an issue over time also.
Regarding Opendoor and any tech companies making offers (as Zillow will do in Sacramento presumably by the end of the year), it’s critical to know the fine print and consider all the fees. I think to be fair though, when a big company comes into a space, it is natural to have some animosity. Moreover, some of the marketing from companies seems a bit disingenuous at times. In short, if the numbers work for you, then so be it.
I did an appraisal for a client recently who has an offer from Opendoor. He wanted to be sure he wasn’t leaving money on the table. In my mind on paper the offer was reasonable. The key is going to come down to repairs. That’s the x-factor, and he didn’t have those figures yet. He’ll have a decision to make once he has more information.
Sorry about that, I was responding to Shannon’s comment about if consumers really know how much their giving up for convenience.
It’s not much. Instead of 5% to 6% commission and the holding costs associated with listing traditionally (and still making the necessary repairs to get top dollar), I’m at around 9% (when you include the repairs) with no holding costs (at least 2 months of mortgage payments, utilities, etc. at the fastest for buyers who will be using a loan purchase).
I will say this, real estate agents are going to have to step their game up (at least seller’s agents). I met with a few and they all promised something similar – we’ll list your house as high as we can and make concessions on the things that need to be repaired (the same things Opendoor called out for repair in their home assessment – the guy who did mine was a former appraiser, or so he said lol).
If you’re buddy can do the repairs that Opendoor calls out himself, isn’t in a rush to sell his home, and the holding costs won’t eat into his profit from the sale he should probably list the traditional way. He’ll get more money – at least 3% to 4% more than the overall Opendoor offer.
If he’s not handy like me and in a similar situation, Opendoor will be a great option.
Thanks. It’s all good. There is no offense here. I appreciate the conversation and you were cordial about everything too. That’s exactly why this post exists. I emphatically agree that agents (and all real estate professionals) are going to have to up their game. I speak weekly in real estate offices and I’m always encouraging my friends to bring as much value as possible, work harder than ever, tell the story of the market in specific terms rather than cliches, and to prove their worth to the marketplace. The appraisal profession is really changing right now too and my peers and I also have to figure out how to respond or think ahead of the changes. In some senses I cannot help but think of Blockbuster Video and Netflix. Blockbuster owned the brick and mortar market, but it didn’t diversify before the world went digital. That’s why there is literally only one Blockbuster store in the United States (in Oregon).
We are at the beginning of tech companies coming into real estate, so it’s an unproven market. We are going go have to wait and see what happens.
Have you heard about the new “Bifurcated Real Estate Concierge Experience”?
If your a Buyer, you download the App, provide your requirements in a home, and post when you would like to schedule a tour, and a Tour/Professional, not licensed or certified, takes you to look at homes. The Buyer can opt for the 3D walk thru to save the time of actually going to the home. They also view the 3D drone tour of the neighborhood. When you find the one you like you select it in the app., it then then provides an AVM, TDS, and posts interviews with the neighbors near the listed home, who tell you how wonderful the neighborhood is.
When the Buyer likes a home, they select an offer price from the three suggested options, and a Contract to Purchase is electronically transmitted to The Buyers Licensed Real Estate Agent who reviews this , and at least 20 other transactions each day, and forwards the Approved Transaction to the Sellers Processor, with a 1 hour time limit to accept or decline. If accepted the, the Processor sends the electronically signed Contract to the Lender, who pre-qual’d the Buyer when the got in the car at the start of the tour of homes.
Having received te text that the offer is accepted, the Buyer then goes to the Escrow section in the Real Estate Concierge app, approves the Docs sent by the Lender, and drives back to their NEW home and picks up the keys in the Electronic Lock Box and takes possession.
The Seller has similar time savings. A Sellers Real Estate Concierge reviews the photos sent by the Owner, Posts the property in the MLS, orders the TDS and home inspection that is completed the same day, posting the report 30 minutes after the inspection is completed.
It’s called the “1 Day Wonder” and is sweeping the country, the cost to the seller 1%, using your choice of Zillow, Google or Amazon Real Estate Concierge Services. Most transactions now only cost $5,000 vs the OLD & SLOW way at 6% would have been $30,000. Some details of a home are overlooked, but it is FAST, and isn’t that all it’s about?
disclaimer, the preceding would never happen, would it?
Thanks Richard. That’s a wild scenario, but portions of it are not too far-fetched. I’m reminded in all of this that he who controls the narrative wins. As appraisers we’ve seen this happen in our profession. For years the narrative from non-appraisers has been about turn-times and an appraisal shortage. There was no real discussion about appraisers not wanting to work for low fees and AMCs being a nightmare in large because those spinning the narrative used talking points to their advantage. So in this market the public is listening. Who has the strongest voice? Who will build trust and have credibility? That’s the big issue from my perspective. It’s not even about who is right. Who will be seen as right?
Great thoughts Ryan! All so true! I think the point that resonates the most for me is the expectation of speed during the process. To your point, the faster things get, the more errors are likely to be made. When that happens, different issues arise, which is, ironically, counter-productive. Errors slow things back down. Just further down the line. Errors sometimes end up costing people and businesses more money. In the end, a little patience can pay dividends! Thanks for your thoughtful post as always my friend! I look forward to them every week!
Thank you Jamie. I always appreciate your take. There really is an advantage to having less speed in real estate. We have to remember quick transactions are the byproduct of an increasing market with tight inventory too. Ten years ago it was taking about 90 days to sell instead of closer to 30 days today (in Sacramento at least). Thus historically we haven’t always seen things go quickly. Thus it’s pretty short-sighted to think we need tremendous speed for everything. In my mind speed doesn’t need to be a reality in every type of market. Of course with a housing shortage on our hands it doesn’t help the situation because we have a new normal of low inventory. This only helps tech companies come into the market.
Absolutley! I don’t things can get much faster. Then again, who knows. We’re in it for the long haul.?
Great thoughts Ryan. It is safe to say that tech companies will change the way we buy and sell real estate. I think that change will not be all good, but hopefully society will be disciplined enough to maintain important safeguards. My assessment might be too optimistic when you look at how easily society forgets past mistakes.
Thanks Gary. Well said. I appreciate your optimism. I’m an optimist too for sure in most areas of life. We’ll see how it pans out. I do worry about systems of checks and balances. On a related note I think we are far too trusting of technology and we tend to let reason take a back seat. Whether it’s Google Home, Alexa, the fine print of what it means to have Facebook Messanger, etc… We are living through times where data is being collected on a massive scale and then leveraged to build massive empires of business. And we like the businesses too for the most part. I just saw Hasan Minaj, for instance, talk about his distaste for some of the practices of Amazon. But he also said he wasn’t going to be getting rid of Prime. I get that. 🙂
Ryan,
I loved this article…all of your blogs are so good , but this was especially good. I’ve been doing this a long time and have seen many real estate companies come and go and I know the market is changing, but in buying or selling a person’s most valuable asset, it usually does take a lot more than just a click of a button…. a real pro in the business is essential for most buyers and sellers and I’ve seen many of them make huge mistakes that could have been saved if they had dealt with a professional Realtor (rather than someone who has a license, but not much experience). Experience does matter in this business. Speed is not necessarily a crucial item for most people, but doing it right is.
Thank you so much Gloria. Excellent commentary too. I particularly like the last line.
I completely agree about the value of a professional. This is true for any field really, and it’s definitely valid for real estate. The public doesn’t often understand the expertise, knowledge, negotiation skills, and network of professionals that collectively work together to help deals work.
I’m reasonable about the advent of technology and it having a place in the market, and I imagine cookie cutter tract neighborhoods are the easy target for many of these firms. But unique properties, non-conforming areas, and funky stuff absolutely requires deeper knowledge that is usually gained through many years of work.
What two or three opportunities do you see stemming from this change in how folks do business?
It depends. Real estate professionals can work with tech companies, work against them, or try to create their own more efficient systems. I would suggest everyone asking what needs these companies are addressing as that may be worth considering.
For appraisers I see the need to assist sellers selling to tech companies for sure. Most of all I see this as an opportunity to go where the iBuyer is not going. So far the iBuyer model seems to focus on conforming homes somewhere around the median price, so this type of trend prods real estate professionals to specialize in housing stock that is not easy to value. That’s off the top of my head. Back to deadlines. Anyone watch to pitch in thoughts?
Good article Ryan. I was having this conversation with a Redfin agent just this week. He believed that the new “tech-savvy app-oriented” generation will be buying differently: Buying a house on whim and paying for it immediately and close in like a day. And a lot of us are going to go the path of dinosaurs. I believe, as you mentioned, that there is just too much human element involved in buying and selling real estate, this biggest financial investment of most people’s lives for it to happen with “an app”, with a “click” or a “swipe”. Also, I argued with him that not all of the tech savvy millennial are going to be rich, uber smart likes of google and facebook employees making a zillion $ a year. In fact, most of the population will not be so. They still will need a living, breathing, hard working realtor to hold their hand and walk them through the process. They will, no matter what, be doing inspections and finding out that that A/C is not shooting cold enough air and we need to address that. (App and computer and algorithm won’t be able to do that) Home buying process will not go the route of “Amazon free delivery to your door step, if not happy return for full money back guarantee”. We already saw “gun blazing, roughy toughy new sheriff in town” Purple Bricks go belly up. We will see that a lot of these successful tech companies who are “seeing opportunity” in real estate come and find out “it wasn’t what we thought it would be” and leave. (kinda similar to a lot of individuals who get their real estate license and then get out as quickly as they came)
I’m curious by what future will bring but not intimidated by it. If tech companies can do what we do, more power to them. But I ain’t betting on it.
Thanks for your take Bahman. I always appreciate it. There will be some buyers who embrace tech and want something immediately, but there are some real dangers with one click. I’m cool with buying stuff on Amazon with a click, but I’m leery of such a large purchase – especially since we need to verify value if there is a loan involved. Let’s not trust big data and tech brands so much that we forget the important role appraisers are tasked with playing in the housing market.
On a side note, a couple years ago I watched a video of one of my son’s favorite YouTubers buying a house. I was blown away to see the video sponsored by Zillow. Like them or not, they are tapping into the future generation. I’m not too sure any organization representing any real estate profession is being that progressive.
Great points, Ryan. While I think some industries do well when tech is introduced I think we should tread lightly when trying to do the same in real estate. Like you said, a lot of emotions are involved and tech can’t take that out of the picture. When speed is the main concern I think quality will suffer so we have to decide what an acceptable level of quality is. When it comes to the largest purchase most of us will make I think we would like the highest level of quality possible so that will naturally affect the speed and cost factors.
They will get digitized and speed things up; then they will need a law to slow it down for buyers needing time to fully vet. What a world!
Thanks Tom. Sorry for the late reply, but I’ve been on vacation. It’s so good to be back now. Anyway, I think we also have to consider what is at stake here with the public. We need a solid system of checks and balances when it comes to the valuation of real estate, so we ought not be flippant about changing that in the name of speed.