Intro to the field: New Property Marketplaces

New Marketplaces is a series of 3 blogs published during, before, and after our member event: New Marketplaces held on April 2nd 2020.

Both in terms of listings, visitors and data, online marketplaces for property are on a steady rise, impacting the real estate industry and its customers alike. Residential real estate was first to adapt to the change, while the online market for commercial properties is starting to adapt too. Looking at PropTech Denmark’s own community a growing number of members work within the marketplace category, including Brikk, Hococo, Keyhole, LifeX, Rently, TrueMarketValue, Kameo, and Brickshare.

But what is the hype about? And why is it important for us to keep up to speed with the digital newcomers among property marketplaces? The answer is essential that the digitalization of property transactions is impacting all of us on one level or another, whether we are brokers, property buyers, sellers or renters. Here, we take a look from above at some of the most important aspects of this impact.

1. The new marketplace: Here to speed things up

Several Danish startups target the challenge of helping customers find their future property to own or rent. Platforms like Respace and OfficeHub provide an overview across the commercial real estate market with the latter specifically addressing office needs for entrepreneurs. OfficeHub belongs to a group of marketplaces, including SquareFoot, that promote shorter leases and a new degree of flexibility for users.

Within residential real estate, online marketplaces have the opportunity of simplifying the task for private buyers and sellers. The process has for long been tinged by uncertainty and stress. Were you going to get enough money for your existing property to be able to afford a new place? When would you actually get to sell it? What would the bank say? And how about the moving date? We are many who have had to move in with relatives or stay in in-between housing while waiting for the keys to our new house.

But where there is a problem, there is a digital solution, and “market makers” such as the Fairhomes platform (which we touched upon at our kick-off event), aim to minimize that uncertainty. They step in between buyers and sellers to make sure that the time it takes to sell a property, and the price gap between the first offering price and the final number, is not too large. By giving the sellers a cash offer within 24 hours, people are free to buy a new property without having to worry about how much money they will make on their current one. For the buyer, it also means more flexibility, as they get to annul their buy within 6 days and have the option to re-sell to Fairhomes within 30 days.

Comparably in commercial real estate, the leading US marketplace Biproxi, wants to speed up things too. Their product focuses on shortening a typical sales cycle from 120 days down to 30-45. They do it by focusing on the market’s large middle road of properties – so not the most prestigious of hotel developments – and armor smaller brokers with a varied stable of marketing products. This gives Biproxi multiple revenue streams, from individually priced services including drone photography and property condition assessments, to taking a fixed fee in combination with a 0,5% of the final property sale.

2. The broker’s role is changing

Neither Fairhomes or Biproxi are made to take the broker’s job. But the recent volume of digital market entry points calls for adjustments to the broker’s role. Firstly, brokers are no longer needed as gateways to properties. Additionally, as the market is no longer inherently tipped in favor of the sellers (and their brokers), due to the base price offered by for instance market makers, brokers need to compete on quality to achieve a better deal flow. If they manage to reach a better price than the base price offered, the difference gets split between them, the seller and the company. It might become a win-win.

In general, the consensus is that brokers across the residential and commercial real estate will not become redundant. But their function - and power - has already shifted and will shift even more in the near future. They may, for example, increasingly position themselves as expert advisors to owners. There is a parallel to be made to legal tech, where platforms like LegalHero have moved some legal services online, but not replaced the role of the highly specialized lawyer. The legal startup Ante even has it built into their mission: they provide easy access to information on recent law practice, so lawyers can spend less time researching and focus on their clients. There is room for similar discovery platforms easing the broker’s traditional work of finding properties for the buyer, while the later negation stage is harder to imagine fully digitized.

The rise of the tech-driven broker explains part of the attention surrounding Compass, the US brokerage startup. For the high-end residential market, Compass employs 10.000 real estate agents and has invested in developing their own technology to automate the tasks not requiring a meeting with the client. Worth noting is that the tech is used to increase the quality of that interaction. Compass’ data on market trends could, for instance, make the meeting easier, when it comes to explaining a sales valuation.

3. Knowledge is power

As technology advances in the real estate industry, it becomes increasingly clear that information is the future of the property market. Successful digital marketplaces, where a great amount of deals happen, naturally have access to huge amounts of benchmarking data, both when it comes to deal structure and pricing of assets.

Companies like Zillow, Trulia, and Redfin are specializing in this field, compiling and collecting data on demography, consumer survey results, traffic, and buying and selling trends in particular areas. This data is then analyzed to offer brokers, buyers and sellers, insights on price trends and potential value in specific neighborhoods.

Brokers, on the hunt for new digital solutions and software to gain an advantage on the market, can take advantage of this by buying whitelabeled data tools to use in their workflow. Property owners could also make use of the data gathered to get knowledge on property analytics and consumer information.

4. Timing is everything

Some digital marketplaces are gaining an advantage by going directly to city planning and economic development officials to list spaces that are earmarked for rezoning or development. This operation called a “pre-sale”, offers an even earlier entry point than many other digital marketplaces, as it steps in before the actual listing of the property. UK-based Houso and Danish Adoor offer similar proactivity - via their apps - on what is about to become available for buyers on the residential market. Propstep has carved a niche for users looking to rent, as they partner with developers and showcase homes in the mature project stages. With the goal of engaging the end-user even deeper in the development phase, Almenr matches people that want to create a co-living space and facilitates the process from design to the finished building. These kinds of “pre-sale” players could pose a serious threat to traditional marketplaces, as they stay ahead of a fiercely competitive area.

Speaking of timing, digitized marketplaces in general gain an advantage by offering ways of turning the entire home-selling and buying process into a quick and easy affair, without any paperwork involved at all. A formerly slow business is transforming itself into an agile market.

5. Automation

As in almost every other industry, AI and machine learning are having an important impact on the real estate market. According to Deloitte’s global 2020 study, 31% among 750 real estate industry respondents are already using artificial intelligence technologies, while 63% plan to do it. Personalisation is key in most businesses, and thanks to machine learning, this will also be the case for property hunting. Instead of just focusing on parameters like size, location and price, online marketplaces will soon be able to personalize the listings based on the prospective buyer’s taste, personality traits, values, lifestyle and more. Data on schools, crime and green areas can also be integrated and allow buyers to make an increasingly informed decision.

Interactive chatbots are also being used in digital marketplaces to offer a more personalized experience by answering questions from customers and perhaps even accompanying buyers to property showings. Thanks to technology, real estate agents can now do many simultaneous showings, either virtually or by accompanying their visitors on a tablet.

Within commercial real estate, automation is becoming a factor too. Bowery helps appraisers set the value of a property through software that connects data sources. These include public records and easy formatting of inspection photos into the final appraisal report. Investors should consider other kinds of tools, for instance, Skyline’s take on automation: an AI-based investment manager that gives access to insights based on large data sets. Where the groundbreaking technology is Skyline’s big sell, the investment marketplace Jasper has a more balanced positioning. They emphasize how technology strengthens their sourcing and analysis in combination with a team of the flesh of blood that has investment experience of 1000+ transactions.

Like Jasper, platform providers such as EquiSafe and Fortem Capital, want to make real estate investment accessible to a bigger group of people. Far from the standard methodology, they are worth paying attention to, as they are developing a process of tokenization. This converts real estate into immaterial tokens on a blockchain network. Potentially it can create a new wave of collective investments, where each investor brings a smaller amount of capital to the table, similar to how crowdfunding opened early-stage funding to the majority.