Technology and its impact on the real estate industry
I was recently invited to deliver a lecture to students at the Department of Property, University of Auckland Business School on the impact of technology in the real estate process. I thought having delivered the lecture I would share the content of the lecture and the slides as a synopsis of my thinking.
I chose as my title for the lecture this excellent quote I have used many times over the years when talking to real estate agents about the transformative impact of technology in their industry.
The principle here, as in other such talks is that the real estate industry is not in imminent danger of being replaced by a single technology solution that completely disintermediates the process and makes the role of the agent obsolete, but rather that the transformations in the industry will be powered and enabled by technology and the winners will be those agents who embrace such technology rather than fight it. In reference to technology the solution for agents is not to be found in the acquisition of hardware per se, but in the adoption of solutions which will largely be software solutions, applications and platforms.
At its core, my premise is that the real estate process can be segmented into five core components; analysing the impact of technology on each individually provides a richer insight into the likely long term impact on the industry overall:
Prospecting - the task of business development largely a referral and profile business requiring individual agents to market themselves and their services as unique and distinct brands in a largely undifferentiated marketplace of such services
Listing appraisal - that task judged to be of primary service delivered by all agents and promoted as a value-add free appraisal as to the market value of a client's property
Marketing - the creation and promotion of a client's property as a piece of marketing collateral, promoted across multiple platforms seeking to attract the widest audience of prospective purchasers
Facilitation - the herding and nurturing of those prospective buyers to stimulate interest and intent to make an offer to buy the property, overcoming objections and apathy to maintain interest by these prospective buyers
Negotiation - the capability to close the deal to the satisfaction of both the buyer and the seller such that the sellers expectation of price and conditions of sale can be met by the buyers acceptance to a price and necessary conditions
These five steps are critical in understanding and appreciating where the future vulnerabilities lie for the real estate industry and where the opportunities exist for those in the industry to embrace new technology based solutions that will likely provide greater efficiency or potentially challenge current processes.
In providing a backgrounder for my outline of these technology advancements I took a step back to examine where the industry has come from on the technology path; where it is, at this time here in New Zealand, and how that compares to international trends; and then finally to look forward to where the future might take the industry.
As a timeline I chose to step back to just 10 years ago. A short timeline to some extent but in the context of my lecture it represented a fairly significant period of change. At that time back in 2004 the process of real estate had not changed much for a couple of decades. The tools of the trade were a mobile phone and the executive car.
Agents were gatekeepers of all the data. Accessing that data at the time and place buyers wanted was simply not possible, as the nascent web offerings in NZ were limited to RealENZ offer with a large number of listings which simply amounted to descriptions with a pitifully few photos; and Trade Me with a very limited selection of private sellers. The advertising medium of choice at that time was newspapers and magazines. The print deadlines being the critical deadlines around which the industry pivoted and as a result property buyers as well who had to wait for the weekend paper. Agents were very reluctant to engage by email preferring the phone and person-to-person meetings.
The next ten years witnessed some step change technology introductions that have reinforced the web as the primary platform for real estate information and marketing.
2005 - the introduction of Google Maps was transformative, providing context to all properties in location terms, opening up the access to addresses on almost all properties. As today's date, of the 41,451 properties for sale 92.5% of them are displayed on the website of Realestate.co.nz with an address - that still leaves over 3,000 without an address. However back in 2006 when this first analysis was done only around 36% of properties listed on Realestate.co.nz had a displayed address
2007 - whilst images accompanying property listings did not miraculously start to appear in this year, it was a turning point when agents recognised and responded to the desire by buyers to seek out more listings online and require more images. In 2006 the average number of photos per listing on Realestate.co.nz was less than two by 2007 it had ‘leapt’ to more than four, by 2010 it was 11 and by 2012 closer to 16
2009 - the emergence of social media was a new platform opportunity for agents with the ability to build online profiles and demonstrate domain expertise in their local market with insight and analysis of the property market at the hyper-local level. Realestate.co.nz launched the blogging platform of Agent Voices and thereby enabled many agents to build their social profile, later supplemented by Facebook - naturally!
2010 - video was by then becoming more common although the early versions were somewhat meaningless video montages of the listing photos. The professionalism of videos has improved markedly over time as has the adoption; with many listings now incorporating a variety of video styles
2010 - probably more significant and in my mind more important has been the adoption of floorplans with listings. These really provide a clearer sense of context to complement the photos, just as maps did to the address 5 years before
2010 - whilst the launch of the first smartphone had occurred a few years earlier the first app dedicated to real estate and showing-casing the full portfolio of property listings launched in NZ at the end of 2010. The Realestate.co.nz app quickly became the most popular means of browsing for property with more than 200,000 downloads to date
2011 - the natural evolution of simple classified listings to premium and to super premium listings occurred as agents recognised the value of enhanced profile which drove more exposure and enquiry and naturally became a key part of their marketing platform (well for some)
2012 - the tablet became a core platform and whilst there are various options, for my money the best experience (albeit compromised by limited listings) is still the
New Zealand lagging behind
Whilst all of the above provides a sense of a dynamic advancement of technology in the consumer real estate space, the fact is NZ actually lags woefully behind many markets in terms of innovation in the field of property portals.
The global market of property portals now spans the globe with all major markets covered with competitive players offering rich services and providing rich rewards for the big media owners, shareholders and investors. The top 5 global property portals are now collectively valued in excess of $20 billion and the global market probably accounts for over $100 billion in revenues.
When it comes to platform options for viewing property in this digital age NZ can deliver iOS and Android apps but little else, overseas options now include wearables as well as every possile platform from Google Glass to Kindle.
User Design for many smart online global service offerings has come along way in just the last 3 years, we are used to continuous scrolling, responsive design and full width presentations - not though in New Zealand and not from our two property portals! We are experiencing 2010 technology, it needs a rethink and reinvention.
A simple tech capability somewhat ubiquitous across most of the property portals around the world is the ability to simply draw your own search area - using a digital pen with your mouse, you describe the location of choice selecting which streets to include and that creates a personal search area - far from being constrained by suburb boundaries.
And then of course we come to data - for many property buyers in many countries (particularly our natural partners - Australia, US and UK) access to comprehensive sales data by property with estimated valuations for every property whether for sale or not is the norm. This insight empowers buyers and enables people to have a clearer view of where they can afford to live, unbounded by the views of local agents. For New Zealand we at best have to rely on 3 year old Capital Valuations and at worst fork out hundreds of dollars for information which is actually public, collected for government bodies which are paid for by tax payers.
Where are the key future developments in the digital transformation of real estate?
The richer more immersive means by which buyers will review properties for sale will come from the likes of Matterport and their excellent full 360 degree viewer allowing unlimited access to the whole property in the palm of your hand. We may go as far as to experience a total immersive experience through the likes of Oculus virtual reality to allow us to sense walking through a property and interacting with it.
The potential for the fully functioned digital transaction could emerge with professionally managed online auctions as is growing in the US with the company Auction.com. This company started out by auctioning distressed inventory of repossessed houses and now facilitates a wide variety of real estate transactions across residential and commercial property - and here’s the clincher, just as in fine art auctions, the buyer pays the commission.
It is likely that the components of real estate could be unbundled so clients choose from an ‘A la carte’ menu of options each priced in clear dollar terms rather than a bundled offering for a commission of selling price. Easy Property has just launched in the UK based on this model, it is currently only offering services to landlords but their intention is to move into property sales.
Those are just some of the future trends, there will be more. One inescapable truth of technology is that the new smart tech you think will change your industry will be overtaken by the tech you have not even seen yet!
So for real estate the best answer as to where the changes will most likely occur is to examine each of the 5 steps of the overall process and examine the likely transformations enabled by technology.
The likely disintermediation of real estate - Prospecting
The whole process of prospecting in the real estate industry is massively unproductive and inefficient. Too many agents fighting over too few clients to secure a listings for a commission fee that has to support the inefficiencies in the process. Technology will deliver a solution, it is happening slowly around the world as a large number of start-up companies seek to offer services to better connect sellers and agents, motivated by the recognition of value that agents ascribe to a new client, a client they don’t have to prospect for, but one that comes to them.
The core to finding and selecting an agent is all about data. What sellers want is to find an agent that has sold a house like theirs, recently, in the same area. An agent that achieves a fast sale at or above the market rate. An agent that is well regarded and has the skills and experience to deliver that sale. All of these signals are delivered through data points that exist based on their work experience. Most of the data is generated through property portals and that is where this service of matching clients with agents is most likely to emerge in the coming years.
What is clear is that the days of door-knocking and leaflet dropping are on the way out. Just as buyers turn to online services to find property for sale, so sellers will turn to digital services to find the right agent (or more likely shortlist of prospective agents) to service their needs in selling their home.
When it comes to demonstrating the proof of this approach there is no better model to look to than Redfin in the US. They are a real estate company with real estate agents. However they are the most data driven real estate company on the planet. You can review all their agents by metrics of the hard data of sales performance as well as the soft data of customer reviews - objective evaluations based on professional reviews rather than curated testimonials. Redfin is smart, it employs smart tech enabled and tech literate agents who are demonstrating the ethos of “Agents will not be replaced by technology …. they will be replaced by agents with technology”.
The likely disintermediation of real estate - Listing Appraisal
This segment of the process is the most vulnerable as in many countries sellers don’t rely on agents to provide appraisals for property valuations, online services provide the insight about all property sales in the area of interest, coupled with smart algorithms that deliver estimated valuations which with self-learning feedback get ever more accurate. This technology revolution is shrinking this component of the real estate process and reducing its value.
The likely disintermediation of real estate - Marketing
In many ways the marketing of property has already been disintermediated as the agent relies on other parties to deliver the components of the marketing. The photography is outsourced with professional photographers undertaking an ever greater proportion of listings as this has been proven to deliver serious results. Signage whilst in this digital era, is still a critical component of marketing. As for the core of marketing, the presence on property portals remains the most important platform despite the claims of print media. For New Zealand agents the challenge is that fact that Trade Me Property delivers a level playing field that allows private sellers to compete directly with agents and achieve the same level of awareness and leads - that is the indisputable demonstration of the extent to which this part of the real estate process has already undergone disintermediation.
The likely disintermediation of real estate - Facilitation and Negotiation
These final components of the process of real estate have always been and in my view will always be, the true value proposition of the role of a real estate agent. The persistent and persuasive ability to bring interested parties together, to maintain that interest, to facilitate the contractual proposal of that initial offer and to motivate the parties to negotiate to a successful end result of an unconditional contract is at the very heart of the real estate process. It is not a process that is or could be outsourced to a digital solution. It is by its very essence the fundamental reason why so many private sellers having succeeded in gaining interest and inspections in their property only to see it fail to sell. It is just too hard to undertake the facilitation and negotiation of the real estate process without the professional, detached and experienced capability of a real estate agent.
That is why it is ever more true that the future for the real estate industry lies in the hands of the successful future breed of agents that embrace technology and allow its transformative capability to supplement their core skills and to drive greater efficiency which will at the same time deliver greater value and appreciation from clients. That is the world of opportunity for those agent. For those that fight it, and defend yesterday’s methods, their client base will dwindle and they will be replaced by this need breed of agents - smarter, savvier and tech enabled.
The slides from the lecture are presented below. Please feel free to quote and share the presentation. I am grateful to Deborah Levy, Associate Professor and Head of Department at the Department of Property, University of Auckland Business School for allowing me to address her students. It was a pleasure and a privilege.