Market Analysis

Is the New Real Estate Technology Really "New"?

There are plenty of businesses trying to get a piece of the real estate market. There are consolidators, search engines, algorithms, and multiple services offered to buyers, sellers, and agents. Many of these companies' offerings will be helpful or profitable for some part of the industry or market, but they are mostly just ways of tweaking the old system.

This article will examine many of the businesses and technologies that have come forward, claiming to improve the real estate market. Still, first, it is essential to understand what has and has not changed in the past 20 years.

The real estate market has pretty much worked the same way for many decades. A homeowner decides he or she wants to move. They go to a real estate agent and agree to pay 5% for a successful sale of their property. The agent enters the home for sale into a multiple listing service (MLS). Usually, the listing will show that half of the 5% commission (2.5%) will be paid to the eventual buyer's real estate agent. The buyer's commission is offered as an inducement for agents to bring their buyer clients to see the seller's home. Once the information is successfully placed in MLS, the listing feeds the online websites like Zillow and Redfin.

The preceding process has remained unchanged over the years, even as the information moved out of printed books in the late 1990s and onto the internet. That's right. Before about 1999, if you wanted to find out what was for sale, you got in your car and drove to the realtor's office. After a handshake, the buyer went into a room and the MLS BOOK was opened on the table. In the book were all the listings of homes for sale in the area with a single picture and a limited amount of information for each home. You would tell the realtor a few homes that looked nice and the search was on.

Once the internet became a viable alternative, realtors created websites and started putting their listings online. Later, Zillow was founded in 2004 and buyers could then look online to see what was for sale. The physical MLS book then went the way of the cart horse.

Of course, the internet changed a lot of things about real estate, just as it changed just about everything in our lives. Agents could now access not only listings on the MLS website for their clients, but a lot of other information from public sources that had previously been very difficult to uncover about deeds, plot plans, taxes, assessments, etc.

Even though the internet changed a lot of the day to day mechanics of real estate, the basic process has remained the same. The seller gets an agent to list a home for a commission and buyers search among listed homes. It is still a business driven by the seller.

Amazingly, even though the internet would seemingly make it easier for sellers to find buyers on their own, the exact opposite is the case. Homes sold by the owner (FSBO), without a real estate agent, have been steadily decreasing. The chart below shows that in 2002 the percentage of homes sold FSBO was 14%. The last official count, in 2018, shows only 7% of homes sold FSBO. The number of people selling their own home has been cut in half in the past 16 years even as the internet has become faster and more efficient.

Part of the reason why buyers have chosen to pay for a real estate agent is that statistics show that homes sold with agents garner higher prices than those sold FSBO. The table below shows FSBO data versus agent sold property data for 2018. One statistic stands out. The average price of a home sold by an all-FSBO seller was $200,000, while the average price of a home sold with an agent was $264,900 or 32% higher.

There a lot of new technologies in Real Estate, but are they really changing the game or just reshuffling the deck? The internet has changed the way people buy and sell homes. There are automated appraisals (Zestimate), online videos and 3-D tours by Matterport. Houses can be found on applications provided by Zillow and large realtor companies. Instagram and Facebook are full of homes for sale. Documents can be e-signed. iBuyers will give you an offer for your house upfront. Mortgage applications can be finished electronically. There are eClosings. There is even a new service that allows you to rent-to-buy a house. We will summarize many of the latest technologies below.

We would argue, however, that although current technologies may make some parts of the process easier, more efficient or slightly less expensive, none of the current technologies makes it meaningfully less expensive for the seller by reducing or eliminating the 5% commission. Also, there is no technology that puts the buyer in the driver seat allowing him or her to bring sellers to them instead of demanding that they engage in a laborious search of existing listings. Until a technology comes along that either reduces or eliminates the seller's commission or makes the market a more level playing field between buyer and seller, it is just the same market dressed up in more modern clothes.

Below are some of the new companies, products, and services for real estate. Many of these descriptions are straight from the company websites.

  • Zillow, Trulia, Redfin – searchable databases of listings and other information about properties that are for sale and not for sale. Zillow and Redfin have also rolled out iBuyers services and other services. Each of these services also acts as a lead generation engine for agents, who pay monthly for access to buyers.
  • Qualia - a suite of secure digital real estate and mortgage eClosing products that power closings wherever you are.
  • Spruce - Improve efficiency, leverage tech, and provide better customer experiences with the modern title and closing company.
  • Divvy - Rent your dream home while we help you save for a down payment. You can buy the home from us whenever you're ready, or walk away and cash out your savings.
  • Ribbon - Shorten your client's closing to 14 days. With Ribbon's Rapid Close you can make sure your client's home will close quickly.
  • Morty - Our mission is to empower homebuyers to confidently secure and finance their home purchase online. By combining proprietary technology with mortgage industry insider expertise, we aim to demystify and simplify the mortgage experience.
  • Flyhomes - an end-to-end real estate brokerage and technology company that empowers home buyers, sellers, and agents to win. Flyhomes is transforming the home buying experience through comprehensive consumer education, segmented expertise, financial innovation, and on-demand technology.
  • Radius - Radius Marketplace Accept leads for $0. Set your preferences and you'll see leads in your area. Our process is simple and based on supply and demand. You only pay a fee at closing. Looking to send referrals? Your submitted referrals will be expertly matched with quality, top-performing real estate agents. You'll receive a 25% referral fee on every deal closed, guaranteed.
  • Matterport - Whether you're a real estate agent, a broker, or a property manager, Matterport's 3D virtual tours can increase commissions, reach a wider audience, and close on properties faster.
  • Smartzip - has led innovation in real estate predictive analytics for over 10 years. Predicting the future is our mission.
  • Realscout - Where agents and homebuyers search for a home together.
  • Homelight - Hire the perfect real estate agent in your area.
  • Activepipe Smart Match - This is a new service that Activepipe will be rolling out. Realogy and other large Realtors offer Activepipe free to their agents. It is a good tool for creating marketing campaigns. Smart Match claims to be a "matching service" but it is only looking at each agent's email list (their contacts) and determining from the interaction from that single agent and the contact what the person may like to buy. 1. unless an agent does a lot of inputting into the system, this is useless, 2. it is only using information gathered by one agent about his instructions with that person = very, very limited, BUT 3. it shows that finding out what the buyer wants is very important to the agent and to the industry.

Homeowners should look for technologies in the future that will truly change the real estate process by reducing commissions for sellers, creating and environment in which sellers and real estate agents can readily find and communicate with corresponding buyers or allowing a seller a reasonably efficient way to market their own home if they are willing to exert the effort.

The HomeYap Team

Our team of experienced market and housing experts and researchers.