Why Real Estate Tech is So Unattractive for Founders(blog.suitey.com)
blog.suitey.com
Why Real Estate Tech is So Unattractive for Founders
http://blog.suitey.com/why-real-estate-tech-is-so-unattractive-for-founders
7 comments
Phil, I wrote a response but HN rejected it because it was too long, so I posted it on my blog.
http://blog.ezliu.com/which-problems-to-solve-first-in-real-...
TLDR:
Despite directly opposing headlines and section titles, I don't think we really disagree on much.
Real estate is a big space and there are easy and hard problems. Most of our opposing headlines are a result of us describing different aspects of the game.
Happy to chat any time. Email in profile.
http://blog.ezliu.com/which-problems-to-solve-first-in-real-...
TLDR:
Despite directly opposing headlines and section titles, I don't think we really disagree on much.
Real estate is a big space and there are easy and hard problems. Most of our opposing headlines are a result of us describing different aspects of the game.
Happy to chat any time. Email in profile.
One of the main problems with so many companies selling to agents (most of whom don't know how to effectively use the tech they are paying for) is that the increased spending of agents only solidifies higher broker fees for the average home buyer...
I would definitely use a "Rent it" button
Interesting - at what price point do you think people would need to see it in person first? Certainly some sites have proven people will buy ever-more-expensive goods online, but real estate hasn't gotten there yet...
It's not just the price point (though if I'm going to spend $200,000 buying it, I'm sure going to see it first, including the inside).
It's also that I'm going to have to live in this environment. That noisy neighbor? The web site isn't going to tell me about that. It isn't going to tell me about the gang sign on the building across the street (I know, Google Street View). It isn't going to tell me about the feel of the neighborhood - whether, at gut level, I'm going to feel comfortable having my wife and kids live there. There's simply no way I'm going to make a decision about living somewhere without physically going there first. It's not like renting a hotel room for a night.
It's also that I'm going to have to live in this environment. That noisy neighbor? The web site isn't going to tell me about that. It isn't going to tell me about the gang sign on the building across the street (I know, Google Street View). It isn't going to tell me about the feel of the neighborhood - whether, at gut level, I'm going to feel comfortable having my wife and kids live there. There's simply no way I'm going to make a decision about living somewhere without physically going there first. It's not like renting a hotel room for a night.
Preface: I work at Househappy.org a real estate start-up seeking to simplify the search experience.
I completely agree with the article. I read the one posted last week and sort of chuckled (asking where the start ups are) because it's not the technology that's the problem, it's the industry and the market itself... Why?
As the author states, brokers live and die by their commission (my father happens to be one as well), and trying to get them to adopt a new technology can be harder than pulling teeth... And in a lot of ways it's completely fair! Not many tools actually do anything that improve ROI, if anything they're time and money pits.
Furthermore, Realtors don't often trust people who aren't because they don't "get" the problems they're facing. Our CEO is a broker of 27 years, and I will say, without his insight into the industry we would be missing a big portion of the problems they face. Engineering isn't the hard part, problem recognition is...
Real Estate is really for people already in the industry who are aware of what problem's its facing. Its extremely hard to get any footing with no experience. Plus, why bother now that Househappy is out and about anyway ;-) (sorry, can't help but shamelessly plug one last time-- we're also hiring!)
I completely agree with the article. I read the one posted last week and sort of chuckled (asking where the start ups are) because it's not the technology that's the problem, it's the industry and the market itself... Why?
As the author states, brokers live and die by their commission (my father happens to be one as well), and trying to get them to adopt a new technology can be harder than pulling teeth... And in a lot of ways it's completely fair! Not many tools actually do anything that improve ROI, if anything they're time and money pits.
Furthermore, Realtors don't often trust people who aren't because they don't "get" the problems they're facing. Our CEO is a broker of 27 years, and I will say, without his insight into the industry we would be missing a big portion of the problems they face. Engineering isn't the hard part, problem recognition is...
Real Estate is really for people already in the industry who are aware of what problem's its facing. Its extremely hard to get any footing with no experience. Plus, why bother now that Househappy is out and about anyway ;-) (sorry, can't help but shamelessly plug one last time-- we're also hiring!)
Good on you for having a CEO with real-world experience in your field. :) That makes all the difference.
So if your target market is the brokers, the trick is providing value to them. That means more commissions, or more profit per commission. There might be a market for painkillers and making it less stressful, but that will be a much smaller market than getting a piece of that commission cash flow.
And for pricing, either you charge a LOT for service, or you get paid per commission as a percentage, which puts you in the land of state-by-state regulatory and is hard.
To me, this feels a lot more like the enterprise software market than the consumer app markets that seem to attract so many startups. I keep seeing people talk about a B2C approach, and I just don't see how you make a lot of money at that.
So if your target market is the brokers, the trick is providing value to them. That means more commissions, or more profit per commission. There might be a market for painkillers and making it less stressful, but that will be a much smaller market than getting a piece of that commission cash flow.
And for pricing, either you charge a LOT for service, or you get paid per commission as a percentage, which puts you in the land of state-by-state regulatory and is hard.
To me, this feels a lot more like the enterprise software market than the consumer app markets that seem to attract so many startups. I keep seeing people talk about a B2C approach, and I just don't see how you make a lot of money at that.
Spot on there. Selling to the broker franchises in a B2B play is much easier than selling to individual agents in a B2C play. You have to prove to brokers that they are going to make more commissions and it is extremely hard to prove that ROI.
The paid per commission model has been tried by very few companies. It would expose a company to a significant amount of market risk (housing drops like 2008 and your SAAS play is now dead), but could make sense. The issue there is tracking closed deals. There are so many complications during the close that are out of the hands of the software.
The paid per commission model has been tried by very few companies. It would expose a company to a significant amount of market risk (housing drops like 2008 and your SAAS play is now dead), but could make sense. The issue there is tracking closed deals. There are so many complications during the close that are out of the hands of the software.
Yeah. I remember closing on our house (the only time I've ever bought property) and it was so ridiculously complex for even a straightforward transaction. I can't imagine trying to skim from that on a state-by-state legal basis and getting enough to justify the cost. I mean, getting $100 out of it would not be worth it. But getting $1000 out of it would start eating seriously into the margins of other players - how would you bring enough value to make it worth letting you participate, especially in the kind of hands-off way that makes software solutions scale?
I also think what a lot of real estate startups are missing is that real estate is not just single family houmes for sale. There are massive opportunities to sell software to real estate investors and developers, who actually have the funds to invest in software solutions.
There is definitely a strong argument for the value of experience when disrupting an old industry. The main reason real estate has thwarted off technology for so long is that regulation and entrenched practices are set up to keep super-disruptive technology at bay.
This is why I think it is going to take a company with both human agents and software developers to make any real change. It has to be disrupted from the inside out, making experience all the more important.
This is why I think it is going to take a company with both human agents and software developers to make any real change. It has to be disrupted from the inside out, making experience all the more important.
The housing industry in general is at least a decade back from any other industry because of regulation. I work in the apartment industry and can concur that tech could improve it 10 fold. However; this sector along with the industry has an old mindset and are against change.
I totally agree. It's not that new tools need to be made for the existing brokers, but new companies need to completely redefine what a "real estate agent" looks like and does. Only then will then will regulation come close to catching up with most industries.
The bottom line is what the business problem you try to resolve. Helping broker is would be profit prohibitive to brokers, hence the slow tech adoption rate. Now if look from consumer's view, a big problem is to identify what a fair price a house should be in a given area at a certain period of time. The shopping experience only benefit broker which helps to turn on buyer's buying mode. To consumer such a big purchase there are far more important questions to answer before a real estate agent has all the advantages to rip off. Apart from the real estate wall guarded listing, is there any open geographic, demographic data available from which any meaningful software can be built independent from real estate industry? A disruption of real estate industry can only come from outside, and it can lucrative for just considering the amount of fees a broker has taken away from each transaction today. It is amazing so few of founders have targeted real estate industry. It truly needs think outside the box, don't be like zillow or trulia.
You make an interesting point. One of the issues, however, is that all of the data is created within the industry. Because brokers create and control the data, companies must work within the system in order to access the data.
Trulia started as a scraper site to pull info that is NOT in an mls. That is why they first opened in NYC where there was no mls and at present they pull foreclosure data which is also not mls listed property. They do other things, but they were not trying to merely replicate data already available via "the mls" (multiple listing service owned and operated by brokerages collectively by private membership)
Zillow made their big splash with the Zestimate and then branched out after they had lots of eyes on the site via the zestimate before they moved into for sale property data.
Both are what we call "bottom feeder" sites. The big player is Redfin.com and I don't see you mentioning them. They started as a more data driven tech experience before they farmed out or bought into a lot of their tech work. That is the model you want to look at. Redfin takes mls data plus 3rd party info regarding schools...walk score...many other startup and generally bottom feeder site data and incorporates it into one display...including the zillow zestimate link. They did not intend to be a brokerage initially and shifted gears as the money was in the consumer's pocket and not the brokers' and so they followed the money and shifted to an RE commission model to capture the commission dollars vs being paid by brokerages.
As mentioned here they primarily tried to use tech to reduce the cost of service. They have had to increase their commission from their original idea once or twice and elevate the agent component as well. Their original idea was to make real estate a totally online experience. They are the model to study as to what didn't work and to emulate as to what does.
There is lots of room for more Redfin.com models. There are also many small companies here in Seattle trying other ideas...but Redfin is the one you should all study before continuing with this discussion. People first used them for the tech and not the commission discount. I don't even bother with a website as I only talk to my clients in Redfin links, even though I could easily bring them into the mls private portal.
Their original concept was to take 2% market share. A modest goal. They have far exceeded that goal and have grown BUT they do not go to cheap markets generally where the commission discount makes no sense business-wise for the company vs the consumer. Lower commission only works in places where home prices are high or at least above the national median.
One of my clients sent this link to me and asked for my thoughts. Please excuse the intrusion.