A member of a prominent VC firm Andreessen Horowitz believes that big data, big money and changing consumer preferences will remake the industry.
Waves of data and a flood of money are building a future in which “you’re going to buy your house from, or sell your house to, a company,” according to a member of a pre-eminent venture capital firm.
Alex Rampell, a general partner at Andreessen Horowitz (perhaps Silicon Valley’s most famous VC firm, backing Skype, Facebook, Twitter and real estate startups including Airbnb, Divvy Homes and FlyHomes), laid out his vision of the real estate industry’s future last month at a summit in Los Angeles.
Rampell argued that large companies’ access to resources will allow them to be more efficient and disruptive than small companies or agents ever could be. But, Rampell also argued, that isn’t a bad thing because there are “many reasons why it sucks to buy and sell a house right now.”
During his presentation, Rampell ticked off a list of home-selling pain points.
Agents may be good, he argued, but they also might be inexperienced. The industry is rife with conflicts-of-interest, such as when agents represent buyers, but make larger commissions from higher sale prices. Buyers regularly miss out on houses in hot markets because they don’t have cash.
And doing real estate transactions can take time.
“The fact that it takes such a long time to buy a house is one of the reasons it is such a terrible experience,” Rampell added.
But there are three forces working against these problems and giving large companies an upper hand, according to Rampell. The first is simply consumer preference, which means people are less willing to put up with the lag time in conventional real estate transactions.
“The idea of on demand is something that really is just a fundamental change in behavior, or rather consumer expectation,” Rampell said.
That gives a huge advantage to companies like Opendoor, which along with other iBuyers eliminates the need to wait for a sale.
Rampell’s second point was that technology and data allow larger companies to estimate prices and risk more accurately than smaller companies.
He pointed to Zillow’s Zestimate as one product that emerged out of a wave of data and noted that it’d be “hard for individual real estate agents” to come up with something equivalent.
Finally, Rampell’s third point was that after the housing bubble a decade ago, investors began looking for safe ways to put money into real estate. That has produced businesses like FlyHomes, Rampell said, which is among a growing number of companies offering to help homebuyers pay cash.
None of these trends will be especially surprising to observers of the real estate industry, but Rampell’s take is a provocative one nonetheless because of how thoroughly it suggests big companies could dominate.
The implication seems to be that the real estate industry may face the same type of forces that reshaped, say, the book-selling world when mom-and-pop shops fell to Barnes and Noble and Amazon.
Andreessen Horowitz’s take on the industry is a significant one as well; the company has poured funding into an array of transformative enterprises including Facebook, Twitter, Airbnb and Lyft, among many others. The company is also investing in real estate, pouring millions, for example, into rent-to-own startup Divvy Homes earlier this fall.
During his presentation, Rampell described Divvy as one of several companies that are using technology and capital change to “what it means to actually own or rent a residence.” Other such companies include Starcity and its competitors that want to become the “WeWork of housing,” Rampell said.
“A real estate agent could do this theoretically,” he added, “but it’s very, very hard for them because it requires so much capital.”
If Rampell’s predictions pan out, Realtors will face a radically different career in the future. But he believes there will always be a place for agents of some kind.
“It doesn’t mean that real estate agents go away,” Rampell predicted, “it just means that it’s going to be under the rubric of a company.”