In the early 2000s, healthcare was the hot-topic industry. Entrepreneurs, hospitals, healthcare clinics, and investors realized that there was an opportunity in the large, cumbersome, and mature industry.
Similar stage fronts
Similar to residential real estate, most people need healthcare services, and for those that don’t actively need them, there is a high likelihood that they will voluntarily elect to receive treatment. Elective procedures and care, attention on large insurance companies, and new technology like the iPhone in 2007, forced a spotlight on how healthcare systems made money and managed patients. In 2010, the Affordable Care Act was passed, mandating that all U.S. citizens elect healthcare coverage. This created a flood of new patients, sick or in good health, to enter the market. This influx of newly covered participants wanted to use their healthcare benefits, creating additional insurance premiums for insurance companies and the need for new ways to efficiently manage and treat patients. Ultimately, ancillary business models, services, and technology were established like urgent care facilities, remote monitoring technology, and telemedicine providers.
Around this time, America was trying to recover from an economic recession and the bursting of a housing market bubble. Like healthcare, the real estate market was experiencing a significant amount of disruption and the development of new legislation. In 2010, The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed to regulate banks, mortgage lenders, and other financial institutions that were believed to be key players in the financial housing market crisis. Along with the legislation came disruptiveness in the real estate sector, particularly around mortgages and new solutions to eliminate predatory lending.
The impact of 2020
Flash forward to 2020. The residential real estate market was consistently growing from its performance in 2019. Interest rates had been reduced and home inventory was continuing to rise. Then the COVID-19 pandemic hit and while the rest of the economy took a downturn, the residential real estate market moved full steam ahead. In combination with the even lower interest rates than 2019, and reoccuring stay-at-home ordinances, the value of the average American home increased by 9.5%. The supply of homes on the market was limited and the demand was high. Combined with decreasing interest rates (2.65% as of January 2021), the housing market continues to grow despite the pandemic. And with this kind of activity, disruption, particularly disruptive technology, has entered the market.
Opportunities for disruption
Residential real estate has been and is an agent-centric business. Typically, agents work with a firm or as an independent to generate new clients. The hope is that those clients will be a part of a recurring business model, where a buyer eventually becomes a seller and vice versa. However, buying and purchasing a home is a somewhat personal decision, similar to electing a healthcare procedure, and clients want to have a connection with their real estate agent and feel that the agent has their best interest in mind. The rise of the housing market has put a spotlight on agents, the technology that surrounds them, and the housing transaction process overall.
There are a number of disruptive technology players that have entered the residential real estate market. Some of the most disruptive players are iBuyers, like Opendoor and Xome. These companies offer to buy a person’s home with cash, make repairs, and sell the home within a certain amount of time. Most iBuyers try to sell properties within a 90-day window to realize a return. Some iBuyer platforms partner with local real estate brokerage firms to act as a concierge service, helping prospective sellers through the iBuying process, but offer a smaller commission to the agents.
Other new technology that is used amongst real estate agents includes 3D home imaging and tours through solutions like Matterport. Matterport makes viewing properties online realistic and easy to navigate. Another solution, Connect Now, enables real estate agents to quickly connect with and convert potential clients leads, regardless of whether the agent is in their office or on the go. Additional tools like ShowingTime allow for communication with an agent and a seller to coordinate the showing of their home. Agents are able to show a home more frequently, and during times that work for the potential buyer and seller.
With all of the flurry of attention around residential real estate, development of new technology needs to be extremely clear around the value proposition and how it differentiates itself in the market. Unlike healthcare, the residential real estate market is not dependent on years of clinical trials in order to create and develop new technology. Most of the residential real estate technology is fairly recent, and platforms that already exist have a significant amount of capital backing. So, when thinking through the kind of solution you would like to develop, make sure that the technology can add unique value to the market regardless of larger players.
In the end, there are a lot of similarities between healthcare and residential real estate and the disruption that has taken place in both markets. With all of moving-target legislation and need for automated solutions, residential real estate is primed for taking on new technology and changing the landscape of real estate and its solutions.
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