In recent years, PropTech has emerged as a dynamic new force in theReal Estate Technology space. Generally speaking, PropTech is a collective term for global digital transformation occuring within the Real Estate industry. PropTech seeks to bring new workflows to bear across this broad sector. This trend has greatly accelerated in recent years, fueled by an explosion of venture funding and a steady infusion of startups that have risen to the challenge of transforming yet another ‘traditional’ industry. There are a significant number of VC funds, hedge funds and incubators focused on PropTech, funding and powering the current startup wave.
Broadly speaking, there are several trends at play in the PropTech sector. For the purpose of this discussion, I will focus on the Real Estate Industry specifically although this broad sector also includes Construction, Building Management and other related fields.
For the consumer-centric startup, there are significant challenges posed to any disruptor of a large and well established industry section that is threatened by technological change
The market trends in PropTech can be roughly grouped in two categories:
1) Innovators who want to disrupt and fundamentally change the way that residential and commercial real estate is bought and sold by eliminating brokers and realtors. This is the ‘consumer-centric’ model.
2) Innovators who want to bring new technologies to enhance and transform the traditional business of Real Estate. This is the ‘broker-centric’ model
In the consumer-centric model, PropTech innovators are seeking to replace (or eliminate) traditional real estate brokers and Realtors with a lean and efficient transaction process geared directly towards consumers. Naturally this is a huge threat to the traditional real estate business model.
The broker-centric innovation models seeks to transform and enhance the real estate transaction model through innovation where the real estate broker or agent remain at the center of the transaction. This second trend has been embraced by the traditional brokerage community.
It is worth noting that over ⅔ of the funding and development in the PropTech space falls into the consumer-centric category due in part to the larger market share and opportunity size.
Both Zillow and Redfin fall into the consumer-centric category as they continue to disrupt the traditional brokerage model. Zillow introduced the Automated Valuation Model (Zestimate) to enable consumers to understand the potential value of a property without consulting a realtor. Zillow began as a property search portal and is steadily transforming into an online brokerage. Redfin is a brokerage that leverages technology to offer a better customer experience and lower fees. Together both Zillow and Redfin have captured a majority of online real estate traffic due in part to their success at understanding the importance of consumer user experience (UI/UX).
The iBuyer trend, where a home seller can receive an instant all cash offer online, has been embraced by both firms and is currently being tested in several regional markets. To understand the scale of this single opportunity, Zillow estimates that their iBuyer program may generate up to $20B annually within a few years.
For the consumer-centric startup, there are significant challenges posed to any disruptor of a large and well established industry section that is threatened by technological change. This is particularly true in the United States, where the National Association of Realtors has poor track record of responding to structural changes within the industry. That said, some of the most innovative developments in PropTech continue to come from the consumer-centric group, who are free to think outside the traditional industry boundaries. For the broker-centric innovators a significant challenge is how to partner with industry leaders (brokers) to develop a solution that meets the common needs of a wide group of customers.
Make no mistake about it: This is a time of fundamental change throughout the entire Real Estate industry, fueled by rapid innovation and growth in the PropTech space. Many of these innovators are seeking nothing less than the elimination of brokers and realtors on a large scale. Many PropTech startups are better funded than the brokers they seek to replace, and are free to innovate outside of real estate industry constraints and regulations. For a CIO, this represents a challenging opportunity.
Agile brokers will partner with like-minded startups that seek to enhance rather than replace their workflows. With proper execution these partnership can significantly enhance an organization’s capabilities as it relates to new technology development. Complex workflows that utilize AI, Machine Learning and Natural Language Processing are beyond the scope of most brokers not working in partnership with an outside technology team.
A PropTech CIO must develop a broad understanding of the landscape and help to formulate digital strategies that will keep the organization ahead of this breaking wave of innovation. This requires industry research as well as evangelism within one’s own organization. Forming an organizational partnership with your CMO and digital marketing teams is also key, as this group is often an early adopter of new technologies.
The PropTech sector is driving a wave of rapid change across the real estate industry and the real estate technology space. Consolidation is occurring and affects technology startups and brokers alike. Big brokers are rebranding themselves as technology companies while technology startups are fundamentally changing the way that we buy and sell housing. It’s an exciting time in this sector and I encourage my colleagues here to get in the game. Please feel free to contact me via LinkedIn if you’d like to discuss any of these topics in more detail.