From online showings to all-digital signings and closings, the digital transaction has fully come into its own. All month, Inman examines the companies and technologies driving this new world of digital transaction.
Keep an eye on the transformation on Wall Street. It could hit close to home, before you know it.
The Economist described it this way: “Information technology is being used to make trading free, shift information flows and catalyze new business models, transforming how markets work.”
Housing is another big market, estimated at $32 trillion in size, which is affected by the same forces — and not immune to these sorts of changes.
One manifestation on Wall Street is emerging companies like the upstart trading platform Robinhood, which has grabbed headlines for empowering a new generation of day traders. It was the tech muscle behind crazy stock gyrations in seemingly has-been firms like Gamestop, Blackberry and AMC theaters. In pumping up these so-called meme stocks, this new class of day traders poked the eye of the bear, Wall Street hedge funds and their billionaire founders.
While the recent hype in the meme stocks may be cresting, the changes are not. This is not a blip, and markets will never be the same.
Bonds, stocks and even previously illiquid assets often can now be traded quite easily. This is thanks to simple trading tools, more transparency and algorithms than can price assets better. One must ask: are houses next?
Is Zillow the next Robinhood?
Zillow and other innovative firms are trying to make the trading of housing simple and easy. Somewhat like Robinhood, they are doing so with fewer intermediaries. Home search and Zestimate are examples of tools, built on data and algorithms. They give consumers an edge in making smarter decisions about what and where to buy and for how much. It’s information technology at its best.
While considered a rebel, Robinhood is a FINRA-regulated broker-dealer, registered with the U.S. Securities and Exchange Commission. Zillow’s recent IDX move and becoming a broker may be analogous in that it now has better access to all of the information, MLS data most importantly.
Zillow and others depend on the legacy real estate plumbing. The outsiders are now on the inside. There would be no Netflix as we know it if the big telecoms didn’t give consumers internet access.
But making Zillow the bogeyman is too simple and clouds seeing the bigger picture at work, which is not about one company.
Transparency is coming from all sides with more and more data being released about the homes we buy and sell, who is trading them and information around national, regional and micro-level market trends. The question is, how do you leverage this consumer trend?
The heat is on
Just like Wall Street and the telecoms, the traditional real estate companies are feeling the pressure.
The mega-industry lawsuits are unwinding the rules around broker cooperation, rattling the once closed MLS box and unleashing more information about commissions and sales information than has ever been available.
We have yet to feel the full impacts of these legal actions.
Whether Wall Street is the right analogy for real estate may be too soon to tell, but the shift by the well funded innovators is crystal clear. Zillow and Opendoor became the transaction when they got into iBuying and began circumventing how things were previously done. You are now seeing that in mortgage, title, escrow and real estate closings. The digital pipes are being laid.
Moving beyond digital marketing
For two decades, new tech entrants focused on the $15 billion real estate advertising opportunity, selling digital leads, putting newspapers and other traditional forms of advertising out of business.
But Zillow saw a bigger opportunity with the $32 trillion housing market. Wrapped in there are nearly $100 billion in traditional transaction costs. These fees are already being compressed, like the stock trading fees once raked in by brokers that Robinhood sent to zero.
New entrant CoStar thinks bigger as well. Founder Andy Florance talks in trillions, not billions, when he speaks about entering the residential real estate market. And, he never uses the word real estate without putting the word digital before it.
For years, people have wondered whether Zillow would do to real estate what founder Rich Barton did to travel with Expedia, knocking most travel agents out of the travel market. That turned out to be untrue. Real estate agents are part of the equation, then and now. But their fees are being compressed, and their roles are changing.
Once at the center of the transaction, they are no longer the captains of the ship. But they still help people get safely on and off the boat.
Is this real estate’s video streaming moment?
A better analogy for all of these changes may be Netflix, on whose board Barton sits.
Netflix figured out consumer habits and captured mindshare first by shipping DVDs by mail. It made the process of watching movies easier and knocked out physical video stores, first small moms and pops, and then even Blockbuster.
Zillow’s trajectory has similarities to that of Netflix. For one, Zillow makes the process easier. It has captured the consumer and now it is buying and selling their houses, like Netflix’s transition into producing its own content. They are both moving fast to connect the dots on the entire transaction — every platform’s dream.
So who is our industry’s Blockbuster?
Measured by consumer reach and stock valuations, you could argue that the big traditional companies and their worn business models are already reeling from the information technology revolution. A robust real estate market may be camouflaging other fundamental shifts.
Tweaking their business model may not be enough. What is their Hulu, HBO Max or Disney+ streaming play?
Zillow may not be Netflix or Robinhood, but the future is clear. Information technology is disrupting the real estate industry.
It can be hard to see just how profoundly when you are so close to it. Just ask Blockbuster.