- Virtual reality faces structural impediments to widespread adoption.
- It's expensive and adds too little value to mainstream real estate transactions.
- It's not proven to sell more houses.
Earlier in October, Inman published an article titled, “Sotheby’s International Realty beats Zillow and realtor.com to 3-D,” suggesting that Sotheby’s had somehow one-upped the top two property portals in the U.S. with an exciting new technology.
Congratulations, Sotheby’s. You won a game that no one else was playing.
Everyone talks about the product, but there are three fundamental business issues with 3-D and virtual reality (VR) in real estate that no one is talking about.
1. Some agents don’t want it
Real estate agents don’t want to disintermediate themselves, and that’s exactly what VR does. Agents want prospective buyers to contact them, ask questions about a property and come to an open home. That’s how they get their leads!
Agents are a central part of the real estate transaction process. Why would they encourage buyers to use a technology that cuts them out of the process?
High quality content like VR tours empowers consumers by giving them more information about a home without the use of an agent. There are agents who use this to save time by cutting down on pointless in-person showings.
There’s a fundamental issue with VR that goes against the grain of a traditional real estate agent’s job. If agents don’t want it, traction will be hamstrung.
2. Who pays for it?
VR tours and 3-D models are expensive. As the article states, Matterport and other big providers charge between $100 and $200 to capture a typical home. While it’s a relatively modest fee for a $300,000 home, when you start multiplying that by hundreds or thousands of homes, it gets expensive. Fast.
There’s also a huge value misalignment. VR improves the buyer experience, but we’re asking sellers to pay for it.
So who pays for it? Buyers? Sellers? Agents? Brokerages? Property portals? Nope. No one wants to, because of the next point…
3. It won’t sell more homes
There is no convincing answer to the question, “Will VR sell more houses?” The current process works pretty well: People find a house, look at some photos, visit the property, then decide to make an offer.
Offering a VR tour or interactive 3-D model doesn’t change the process. The vast majority of buyers are still going to want to visit a house in person.
VR just adds another step to an already efficient process. It’s not a 10-times improvement to the process of selling a house, and it won’t replace any existing parts of the process. It’s “interesting,” “neat,” and “cool,” but it’s not effective at selling more houses.
(As an aside, I believe there is very real opportunity for VR in the new developments and new construction space. In that scenario, the addition of VR adds a very real value in the process by allowing buyers to see something they previously couldn’t. It’s adding a real improvement to the process.)
The video problem
If we want to understand the potential impact of VR on real estate, we just have to look at video.
Video uptake on the big property portals is very low. REA Group in Australia has the highest numbers I’ve seen, with anywhere between 10 percent and 15 percent of listings having a video tour. But that’s the outlier.
If you look at the other big portals — like Zillow — you’re lucky to find 1 percent of listings with embedded video tours. And Rightmove, the clear market leader in the U.K., has basically none!
If that’s uptake for video (which has been around on our phones for a decade) — arguably a bigger bang for the value buck — what’s the hope for VR? Matterport estimates that about 2 percent of all listings currently include a Matterport video, and anticipates this to increase to 4 percent to 6 percent by the end of 2017. But will it be enough?
The one value of virtual reality
Sotheby’s didn’t beat anybody to anything. The big property portals around the world are more than capable of supporting features like VR and 3-D. They just chose not to. Why?
Because at the end of the day, VR doesn’t add enough value, faces structural impediments to widespread adoption, and is expensive.
At this point, VR in real estate is valuable only as a PR gimmick — which worked, because I just wrote an article about it!