A PropTech Primer

A PropTech Primer

After decades of lagging behind on technology, the real estate industry faces a wave of tech-enabled innovation that is reshaping the ways in which property is bought, sold, leased, financed, designed, built, managed and marketed. A new term has been coined: PropTech.

Sir Francis Bacon, who left his mark on science and technology, famously said that knowledge was power. He might as easily have said that it was money. Real estate practitioners used to spend enormous amounts of time and money collecting, assembling, and analyzing information. This was as true for the management company that sent workers scrambling onto roofs and into basements to read meters and gauges as it was for the asset manager paying a team to gather data on office submarkets.

proptech

Today, PropTech can deliver much of that knowledge to real estate practitioners quickly (often in real time), cheaply, and in easy-to-use formats. Advances in sensors and the IoT allow managers to track and assess building equipment and systems at a granular level from dashboards accessible by mobile devices. Companies such as CoStar, VTS, and CompStak collect and package a dazzling amount of information about commercial real estate, providing unprecedented insight into pricing and trends at all levels.

No more building engineers traipsing across roofs, and no more administrative staff gathering numbers to plug into spreadsheets.

Thanks to technology, real estate transactions have gotten easier and speedier, too, though many have a long way to go. There is Breather, which lets you browse and pay for workspace on your cell phone. Even five years ago, the idea of real estate on demand via phone sounded a little crazy. Not anymore. Consumers can get mortgages online in minutes. Contracts can be handled virtually, and a variety of platforms make instant payment painless.

iBuyers, such as Zillow, OpenDoor, Knock, and OfferPad have built platforms that allow for lightning-quick sales of homes, with much of the transaction occurring online. Transactions are an obvious place for real estate practitioners to look for tech solutions that can improve efficiency, add value for customers, and boost the bottom line. Figuring out an efficient convenient way to handle a transaction is often a key part of providing a new service or unlocking a new revenue stream.

Residential Real Estate

We’ve all heard complaints that residential real estate is full of exorbitant fees and people who don’t earn their keep. Many of the trends in this asset type that are underway address that impression by improving the customer experience, using technology to enhance searches, speed up transactions, and lower fees. Technology is aiding professionals in the space, too, with systems that do everything from save energy to streamline repairs.

A company called Lemonade is turning the conventional insurance model for homeowners and renters on its head, helping to remake an industry ripe for reinvention. Why do we say this? Well, the usual insurance model is built on glaring conflicts of interest. Consider that every dollar an insurer pays a customer who files a claim is one less dollar that the insurer earns in profit. Most insurance companies make money when denying claims, which can lead to
delay and distrust.

Lemonade is not powered by brokers, but by bots—an AI-based system that allows for greater transparency, ease, and speed. With its app, the company claims customers can get insurance within ninety seconds—from $5 a month for renters and from $25 a month for homeowners—and get paid for claims within three minutes. Beneath the company’s technical prowess is an innovative new model.

Lemonade charges flat fees, to eliminate the usual conflict of interest. Once those fees are paid, customers’ money is treated as their own and put into a pool from which claims are paid. Leftover or unclaimed money goes to a preselected cause of the policy holder’s choice. This might sound like a marketing gimmick, but Lemonade is a certified B corporation, independently verified as meeting high standards for transparency, ethics, and social benefit.

House Canary is also leveraging technology to build a new model in residential real estate. The company uses machine learning, predictive analytics, and sophisticated data integration to provide advanced home valuations. House Canary’s PhD statisticians and data scientists claim to have assembled the most comprehensive dataset in the marketplace to serve appraisers, lenders, real estate investment firms, and others who need to value residential property.

The company’s data analysis is both hyper-local, tracking specific details about a given home, and extremely broad, taking macroeconomic factors into account. Its processes have evolved to deliver impressive value reports that allow clients not only to determine current values but also to forecast three-year returns and to set rents, benefiting the bottom line with better analysis.

Radiator Labs, too, says it can benefit the bottom line through lower operating costs, saving landlords up to 40 percent in annual heating bills for owners of buildings with steam heat. Its “Cozy” is a smart, insulating enclosure installed over existing radiators. In building-wide installations, the system redistributes steam flow, transferring wasted heat from hot rooms to colder ones.

The Cozy is easy to install and requires no contact with the plumbing system or steam. The energy saving is the headline for landlords, although they’re also likely to benefit from the app that allows tenants to control their own apartment temperature from an iPhone or Android. Anyone who has ever lived in an old steam-heated apartment, where temperatures tend to be extreme and impossible to regulate, understands the utility of this PropTech innovation for
many hundreds of thousands of apartments.

Other innovative PropTech companies in residential real estate include Flip, a platform that helps renters get out of their leases and sublet their apartments. Flip will vet applicants, so the renter doesn’t have to, and prepare rental applications and sublease agreements. For landlords, Flip offers transparency, credit checks, and automated, guaranteed rent payment. As many start-ups do, Flip uses technology to become a more efficient—and in this case, safer—intermediary in a process that’s often tense for both landlords and tenants.

Jetty uses tech similarly to manage risk and become an intermediary, upending old models. In addition to offering renters insurance and other services, Jetty replaces the standard security deposit, which tenants often forfeit, with a smaller, one-time fee of 17.5 percent of the deposit amount.

Conclusion

“The reports of my death are greatly exaggerated,” Mark Twain famously quipped after rumors of his demise spread. The same tagline might be affixed to brick-and-mortar retail, traditional office space, the conventional residential brokerage, etc. It is easy, amid the excitement generated by real estate technology and emerging innovations, to write premature obituaries.

“Disruption” at some point became PropTech’s favorite word, but even we, the funders and nurturers of putative disruptors, believe it is overused.

Real estate is transforming, and it is transforming quickly, but as our sampling of start-ups shows, most PropTech companies are providing solutions for the industry: platforms, tools, and services that will improve it, not burn it to the ground. Zillow was painted as a replacement for real estate brokerages, but a dozen years after it was founded, most of the company’s money comes from sales agents. Disappearing them, at least at this point, would not seem to be in
Zillow’s best interest. CompStak, as now configured, could not exist without commercial brokers.

Zenreach, Hointer, and a host of other start-ups were designed to enhance the brick-and-mortar retail experience and make it more competitive with commerce, often by stealing the best elements of online shopping.

Real estate is transforming with the aid of technology. That much is clear. Whatever niche you’re in, it’s likely to look very different in a few years. Engaging with the best and most innovative technology is a way to fend off the obituaries because, while some are premature, there will be plenty of death notices. The PropTech space is growing by the hour, and it will necessarily be littered with failures as well as successes. How can you tell what’s best for your organization?

How do you gain enough insight to choose the tools, platforms, apps with the best return on investment? It all starts with understanding the fundamentals of real estate technology, especially early-stage real estate tech.

Note: This is an excerpt from PropTech 101, which is now available on Amazon.com.

Co-author Zach Aaron (at left in photo) is an early-stage PropTech investor in the United States, having funded over 60 startups in the space as an individual as well as 40 startups (and counting) through MetaProp NYC’s venture capital funds.

His co-author Aaron Block has led, invested in and advised real estate services, ecommerce, education services and fulfillment firms doing business in the U.S., Europe, Asia and Latin America.

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After earning her bachelor’s degree in journalism at the University of Central Florida, Tracey set out in the real world at Florida Realtors in 1994 as a communication assistant, working her way up to editor in chief of Florida Realtor magazine. In 2004, she left the association to start her freelance writing and editing business. One of her first clients was REAL Trends, and she started working for the organization in 2005. In 2014, Tracey was promoted to editor in chief of publications for REAL Trends. She handles the writing and editing of all REAL Trends publications and marketing materials, including LORE Magazine, the REAL Trends newsletter and the blog. She is also the primary podcast interviewer where she conducts interviews with top real estate industry leaders and affiliated industry leaders. Tracey is married with two children.

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