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Proptech has come a long way since property search engines disrupted the way Americans discover listings and real estate agents generate business.
Coined to describe technology aimed at tackling age-old inefficiencies within the real estate industry, proptech investment has ballooned to become a $25 billion market, according to analytics firm Statista, with the term splintering off into new tributaries as money flows into rentals and management (renttech), mortgages and underwriting (fintech) and listing tech, among other areas.
As a result, the term is getting harder to define — or, at the least, its expanding.
In February I was asked by an editor to define proptech in 2023, chronicle how real estate technology has grown since Trulia, Rightmove and Zillow ushered in an era of search portals two decades ago, and diagram a future for a rapidly maturing category that has reached an inflection point in which the awkward early growing pains of tech solutions for bad listing photos and archaic pen-and-paper transactions begin to make way for process, not product.
And while no “According to Hoyle” rulebook with a precise definition exists for such a fluid category, compelling signs indicate a transformation in bloom.
By the end of 2023, I think we’ll know what kind of industry we’ve groomed. Until then, this is what proptech looks like. These are the challenges it faces. And this is what the road ahead might look like for executives and entrepreneurs as they begin to formulate a budget, business plan or funding proposal in 2023.
The end of patchwork proptech
The state of proptech is now where it needs to be, focused on undercutting and replacing antiquated business processes. It’s not sexy or consumer-facing — it’s nuts and bolts and broken gears.
Ultimately, everything changed when institutional funding realized the esteem property technology held in the industry. While Wall Street’s role in real estate once crashed the market, its current approach comes from another angle: it’s now aiming at the ancillary systems — technological, financial and operational — that support real estate, and not the other way around.
Everyday agent tools, such as landing page builders, social media campaign builders and back-office accounting solutions, remain critical to helping agents do business. In fact, it can be argued that these systems have been mature for some time and are aging well. Sales automation, machine learning and deep-data integrations are making customer-relationship management and transaction management software exceptionally productive.
Still, these are not the systems from which industry-wide change will germinate. And that’s a good thing — agents shouldn’t be driving enterprise upheaval.
But they better prepare for it happening.
Brokers, leaders and industry innovators should pool their attention toward the trends and tools trying to fix the fragmented assembly lines that choke and sputter their way toward closing day. The agents have everything they need.
Even with the influence of Wall Street and venture capitalists and the onset of smarter title searches and faster fintech, it’s hard to say how close we are to the end of the era of duct tape and baling wire solutions, but at least now we know how to start unraveling it.
Proptech disruption is over
In December, Fifth Wall co-founder Brendan Wallace declared in an interview with Inman that proptech is reaching its prime.
Wallace’s venture capital firm only days earlier had closed an $866 million proptech fund. Not long before that it raised a $500 million climate fund touted as “the largest private fund formed to de-carbonize the real estate industry” in U.S. history. While Fifth Wall focuses on eco-friendly built-world advancements, its familiarity with agent-oriented tech is bolstered by notable investments in mortgage and title fintechs, iBuyers and a digital notary.
“We’re seeing a real maturity in the proptech ecosystem,” Wallace told Inman at the time. “Maturity in the sense that there’s a lot of capital flowing in the space and companies that have been around for quite some time. Those more mature businesses can become consolidators, companies that can drive M&A in the space, and the landscape has become more broad and sophisticated and nuanced.
“It wasn’t like that when we started,” he added. “The footprint is more complex and mature.”
Not long after Wallace’s declaration, Inside Real Estate acquired BoomTown. It wasn’t a deal that swept Wall Street off its feet, but real estate agents monitored the deal as details trickled in Jan. 20. Then there was the rumor of Realtor.com being acquired by CoStar, a deal that as recently as late February was said to be dead in the water. But the second-most visited search portal might still be in the market for a new suitor.
Brendan Wallace | Fifth Wall Ventures
In the same way Uber and Airbnb created uproars in their respective industries (two of the few technology companies that can be called disruptors), a number of new real estate sales models, fintechs, lead aggregators, and search products have done the same. They haven’t necessarily uprooted the way an industry runs, but they’ve certainly wrinkled the bedsheets.
Today though that furor is ebbing, balancing itself into a market not flipped over but spread out. Technology is giving real estate consumers options — it’s becoming a true marketplace.
We’re in a state of proptech adulthood, a time when it’s no longer novel to hire Matterport or send a client a DocuSign package to complete from your mobile device.
But still, adulthood can be tough to accept — especially for real estate professionals, including agents.
PropTech as a change agent
Technology is offering today’s agents countless ways to add value, and they need to leverage them. They can stop worrying about iBuyers. What will affect agent count is any sort of resistance to change.
For example, engaging buyer prospects used to be as conceptually simple as sending them new listings: Be first, be fast.
It was easy for agents to control buyers this way because the practitioners and the MLS executives above them controlled the data.
Is it really the buyer’s fault they took six months to decide on a home, or is it the byproduct of an industry framed by antiquated workflows embedded in a foundation of paranoia stoked along by total market transparency?
Think of it this way: The very product sold by an industry was for a generation shrouded from its own customers, dangled in front of would-be consumers by yard signs that act as data paywalls, “your data for a tour.” Even after that information-for-access transaction, finding a time for the seller only added to the friction.
Trulia founder and now venture capitalist Pete Flint wrote on his company’s website the following in September 2022 in an essay called “Real Estate 3.0 — The Ownership Revolution.”
“The first phase of tech adoption in the home-buying process was Real Estate 1.0, an information revolution enabled by the internet. The problem was the lack of information about one of the most important financial decisions a person can make: Buying or selling a home.”
At the time, the real estate information market was dominated by powerful incumbents, most notably the National Association of Realtors, which had more than a million members and a chokehold on the MLS data, who were concerned about the internet eroding the role of real estate agents and reducing commissions.”
Pete Flint | NFX
Much of the industry’s frustration with Zillow, which acquired Flint’s Trulia, is rooted in the concept. Zillow let the consumers see what agents perceived as their only avenue of value.
Zillow too seems to be reaching a point of equilibrium, moving toward a model that supports agents and their clients. Once the industry mean girl, it might very well have accepted its place as just another face in the proptech hallway, albeit, a taller, more resilient one.
The guardrails around real estate information are lower than they’ve ever been, thanks to the growth — and competitiveness — of online search, digital twins, dynamic floor plans and the collective interconnectivity of the physical home to the consumer screen.
Consumers can now be in charge of the housing data stream, relieving agents of many valueless, intellectually draining endeavors like new listing notifications, tour scheduling or lead quality assessment. Stacks of chatbots, automations, widgets and third-party plugins are finally giving agents a platform from which to see where else they’re needed.
At Keller Williams’ Family Reunion event, company Chief Technology Officer Chris Cox cited the use of QR codes — a technology comeback story for the ages — to quickly give consumers access to property data and agent profiles. The brokerage isn’t ahead in that game, but it matters that they’re using it.
From nearby noise levels and computer vision interior quality assessments to measuring a hall closet on a dynamic floor plan, today’s proptech can help us learn everything about a house before crossing its threshold, and the agents need to know that’s okay. Agents no longer need to be the provider of that information to be successful, merely its navigator.
Value for today’s agent is offered from a consultancy position, not as a mediary. Technology hasn’t replaced the agent, it’s basically made their work easier. It’s doing what it’s supposed to. Proptech is exfoliating the busy work from the deal, the stuff that typically requires individual appointments to complete and too many emails to finalize. And in this process, transactions can be shortened, data better tracked and collated and customers better served.
Accepting this fact is going to be hard for some, but given the rate at which more people are becoming agents, those that differentiate how they provide value will rise above those who stay planted in old methods.
It may be even harder to accept that the real estate economy isn’t giving its practitioners a choice in the matter, because in the end, consumers get what they want in a free market. They have iPhones and mobile search apps, things that are designed from the ground up to attract and capture mindshare. Stop trying to compete. Get out from the middle, let the market talk to your customers and become an adviser, not an information broker.
Venture capital now has a say in proptech’s future
Venture capital’s place in proptech is solidified, and it’s widening its role with every dollar it places.
Today’s VCs are no longer invisible power brokers, they’re connected, insightful business leaders with broad industry expertise and the knowledge to know that real estate’s impact is being felt way beyond buying and selling.
Fifth Wall’s $866 million proptech fund is evidence enough of institutional capital’s growing influence on the industry. It can’t be understated. And where all that money is going will make for compelling real estate case studies in the very near future.
According to the Center for Real Estate Technology and Innovation, $13.1 billion was invested across all proptech sectors in the first half of 2022 alone.
The organization’s leaders aren’t specifically looking for the next hot CRM or lead generator, because that category doesn’t realistically change how the industry works. Funds like Fifth Wall are backing large-scale movements to spark a top-down evolution.
“We want to open our aperture, those distribution lanes and then rapidly accelerate that growth, and do so not just in the U.S.,” Wallace said. “Increasingly, we have international LPs, we can help a technology company expand into Western Europe, the U.K. and Spain and France, into Japan and China and Singapore. That’s what we really like doing, that’s the real center of the bull’s eye.”
Industry names whose impact may be more familiar to the working agent, Spencer Rascoff and aforementioned Flint, have left the powerful proptechs they built to influence the market in other ways.
Flint is a general partner at venture firm NfX, where he has the ability to scan the horizon for what’s next and then put money behind what he finds. In his essay, he discusses the ownership revolution which is already in its early stages.
“There are several new models expanding the definition of owners and ownership. What if, instead of owning an entire home, you could own a piece of one?“ Flint writes. ”What if, instead of paying rent forever, those rent payments earned you fractional pieces of your house (or your business’s property)? What if you could own slices of other people’s homes as an asset, and sell them as easily as you would a share of GOOG on the Nasdaq?“
Rascoff, too, has his hands and readily available dollars on a number of players in proptech through his venture firm, 75 & Sunny. Clelia Warburg-Peters, a longstanding name in Manhattan real estate and once president of her family’s brokerage, leads ERA Ventures, and backed construction technology firm Welcome Homes with $29 million.
In 2021, Moderne Ventures raised more than $200 million to back proptech, and the company’s Passport program functions as an incubator, a six-month initiative helping early- and mid-stage companies refine their go-to-market strategies and forge partnerships among Moderne’s network.
In an interview for Inman Intel, Peters spoke with another proptech investor, David Eisenberg, co-founder and managing partner of Zigg Capital, about where VCs may be looking in the near future.
Dave Eisenberg, Zigg Capital
“Venture capital has moved away from the more asset intensive type of investing that was prominent from the likes of SoftBank over the last five years,” he said, going on to describe all-cash offer products (power buyers), co-working, co-living and factory-built housing as categories VCs will avoid. “They’re more real estate investing than they are tech investment, as many of them haven’t really panned out in the public markets.”
Software, marketplaces and consumer financial technology will remain a focus, he said.
Vik Chawla of Fifth Wall, said much the same at Inman Connect Las Vegas in 2022. On stage with colleagues for a panel on how VC and Wall Street are handling a declining market, Chawla said investors remain confident.
Spurring innovation is a big part of what venture capital can do for a firm, he said, allowing entrepreneurs to really focus on product.
“If you look at why some of these companies build such good products, I would actually say its partially a function of venture capital,” he said. “I don’t see that changing.”
As VC firms take a more active role in funding new ideas in the built space, prepare to see the definition of proptech move with them. The space is no longer merely CRMs, transaction management systems and 3D tours. It includes sophisticated, large-scale solutions that make building homes easier, title searches faster and more accurate, recycling less resource-intensive and HELOCs easier to obtain.
While some of these concepts may sound more “thought-leader” than “thought-provoking,” and not every dollar ventured comes with a gain, remind yourself that the new era of proptech is being backed by industry leaders who have already faced the skeptics. So why wouldn’t they aim higher at the more esoteric this time around? These aren’t only people with, and with access to, a lot of money; they also know real estate.
Automobile manufacturers often show off concept cars that may never see a dealer lot, but a part or idea from one will. And often that component is the reason a car is faster, smarter and more efficient.
Brokerages don’t define proptech
It’s possible Eisenberg was alluding to SoftBank’s role in Compass, which by most measures is losing in the public market.
Credit: Jim Dalrymple II
It largely marketed itself as a technology-first real estate brand but is ultimately no different than all of today’s major brokerages, at least in terms of its application of software. It hasn’t changed how business is done. Keller Williams, Anywhere and the office-less eXp haven’t introduced anything objectively game-changing.
As of late, it appears the major players remain focused on collecting agents, not innovations, hardly a strategy that suggests your technology is helping you do more with less.
They provide marketing solutions, lead-gen tactics, CRMs, transaction tools, mobile apps, integrations and internal resources designed to modernize their own respective workplaces. The same can be said for the aggressive upstarts, regardless of the resources they commit to the cause.
There’s no opportunity for a larger collective space in which innovation can thrive unmitigated when an industry’s primary players build solutions absent of industry-wide standards or principles.
Instead, they build software in a bubble, there’s no universal desire to raise up the industry.
Brokerages aren’t driving proptech’s evolution, they are merely beneficiaries of it, byproducts of its external forces.
Have iBuyers succeeded?
For all of their troubles, iBuyers may end up contributing more to the evolution of the real estate deal than the industry’s legacy brands. They demonstrated that there’s room in the market for a more simple, vertical transaction.
Lead nurture company Clever surveyed 994 buyers in 2022 on the topic of iBuyers, which revealed that even a majority of Baby Boomers, 52 percent, would rather sell to an iBuyer than through a traditional model. Millennials surveyed said so at a 72 percent clip.
And while price is top of mind, a majority of Clever’s respondents said selling a home without contingencies could convince them to sell for less. In other words, an easier sale.
A fan of what iBuyers have introduced to the industry, Brian Boereo of 1000Watt told the CEO Connect crowd in New York that a 1000-Millennial survey conducted by his team revealed much the same: People don’t care about low-cost brokerages or how agents are paid. They want the sale to be easier.
In fact, iBuyers don’t have to remain in business to have had an impact. They can play the role of Napster, the sacrificial lamb.
A hand from Wall Street
Wall Street’s interest in single-family rentals as an asset class will impact how properties are bought and sold. The standards they create for quicker transactions will trickle down.
“Recent research by MetLife Investment Management (MIM) estimated that institutions own some 700,000 single-family rentals in 2022, about 5 percent of the 14 million SFRs nationally. MIM forecasts that, by 2030, institutions will increase SFR holdings to 7.6 million homes, more than 40 percent of all SFRs,” according to an August 2022 statement from software company Yardi.
Naturally, the borrowing environment has greatly slowed the pace of investor activity. As Redfin reported in late February, “investor purchases of U.S. homes fell a record 45.8 percent year over year in the fourth quarter [of 2022] as the high cost of borrowing money and the prospect of substantial home-price declines made real estate investing less attractive.”
Already, a handful of rental software firms are buzzing around that sector to assist in tenant qualification, rent collection and general property management, and there’s little chance investors will tolerate weeks-long title searches or negotiations over chipped concrete on the front step. As proptechs make the cost to operate less burdensome, the more properties its customers can own.
It’ll only help that Jeff Bezos, and now Elon Musk, two of the planet’s wealthiest and most aggressive industry shape-shifters, have gravitated toward residential real estate.
A company called Visionnet has created D-TRAC, Digitized Title Research and Collation, which, according to the company, “automates bulk title research” that can improve productivity by 40 percent, reduce turnaround time by 30 percent and deliver accuracy at 99 percent. Now that’s proptech.
Escrow solutions company Qualia has released an API (application programming interface) that will assist other industry vendors in their efforts to shrink transaction times.
“The Qualia API provides a flexible set of “pull and push” API capabilities allowing companies to securely access their data from Qualia’s Core and Connect title, escrow and closing solutions and create custom reporting and integrations with other in-house systems,“ Inman reported.
Endpoint, too, provides other proptechs with tools to improve closing workflows. Founded in 2018 as a collaboration between First American and venture capital firm BCG Digital Ventures, the company says it has helped real estate agents, brokerage firms and proptech companies close more than $2.5 billion in transactions to date. It has also collected hundreds of millions in funding.
A more secure, smarter closing process can’t be mentioned without working in the potential offered by blockchain. Unfairly stigmatized by its use in crypto exchanges and the way its flippantly vomited into conversations by over-eager marketers, the digital ledger technology will, eventually, truly alter the way the industry manages transactions. The applications to real estate are real and getting closer. It’s not vaporware.
Warburg-Peters of Era Ventures was on stage with Fifth Wall’s Chawla at Inman Connect in January, as was Liz Benson of Moderne, who said down markets are ideal times to leverage technology.
“Fundamentally, what our companies should be trying to do is either drive efficiency, with less humans, or drive the top-line,” she said. “I actually do think we’re going to see our LPs [limited partners] adopt technology even in these more difficult times.”
Peters admitted to the Inman Connect audience that she was once cynical about the role Wall Street plays in real estate.
“There’s a long history of external capital coming into industries and driving growth in our country,” she said. “We went through this boom period of raising venture capital funds. And we have more venture capital funds and those funds are better capitalized than they have ever been, and that capital is going to need to be deployed.”
