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30 DIGS.NET | 11.1.2019 Instant buyers meet instant sellers. A new real estate transaction model is gaining traction in many niche markets across the country – it's called the "iBuyer" model, which allows homeowners to sell their homes directly online and receive instant offers based on a computerized "automated valuation model." Billions of dollars have been invested into iBuying in the past five years, and the innovation is being led by big, well-funded and tech-savvy disruptors like Opendoor, Zillow, and Offerpad. Both Opendoor and Offerpad charge seller fees of about 7% which is higher than the typical 5% charged by real estate agents. Zillow is all-in on iBuying and now operates Zillow Offers in eight markets with further expansion to follow. In its last earnings release, Zillow announced its goal to buy 5,000 homes per month. What makes Zillow unique in this space is its $658 million in cash on the balance sheet, which gives it the financial horsepower to buy thousands of homes without having to raise significant capital like Opendoor and others. According to real estate tech strategist Mike Delprete, iBuyer purchases in 2018 were in excess of 15,000 while iBuyer sales totaled 10,000. Phoenix Arizona is currently the biggest iBuyer market, where iBuyers represent almost 6% of the market. Because the financial stakes are so high, the iBuyer model is heavily reliant on the accuracy of home valuations, so homogenized markets like Phoenix make it an ideal place to start. Traditional brokerages are also getting in on the iBuyer game, with Redfin and Keller Williams leading the way. The other major brokerages are sure to follow. One-stop real estate industry model? The next monumental shift in the real estate industry will most surely be leveraging technology to solve as many of the pain points in the real estate transaction as possible and the biggest new development includes mortgages. In its 2018 financial filings, Redfin stated, "Our long-term goal is to combine brokerage, mortgage, title services, and instant offers into one solution. As we integrate these services more closely over time, we believe we can help consumers move much more efficiently than a combination of stand-alone brokerages, mortgage lenders, and title companies ever could." And Redfin is not alone. Opendoor launched mortgage and title divisions in 2017, Zillow now offers mortgage services and industry behemoth Realogy just announced an iBuyer platform called RealSure and a RealSure Mortgage option. Even the largest mortgage originator in the country is getting in on the action. Quicken Loans, the company behind Rocket Mortgage now offers Rocket Homes, a service which helps consumers find a real estate agent and save on buying/selling costs plus receive a 1% credit towards closing costs. To say that these are interesting times in the real estate industry would be an understatement. It's more like the wild west. There's a new sheriff in town – it's called proptech. Proptech is real estate, or property technology, and as proptech pundit James Dearsley has aptly stated, it's a "50-year overnight success." Historically, if you look at the percentage of money that's spent on innovation and technology, real estate has historically lagged behind other industries by a significant margin. It's a mature industry with well- entrenched legacy players – just like the major record labels were in their heyday before their world changed. And now, it's the real estate industry's time. Venture investment in real estate technology hit $12.9 billion in the first half of 2019, according to the Wall Street Journal and data research firm CREtech. That's already more than last year's record investment in prop tech, which came in at $12.7 billion. It was only ten years ago that significant proptech funding began, and now the investment in proptech is projected to reach an all-time high this year of approximately $25 billion. The big money has moved in. You've probably heard about one of the biggest proptech venture capital funds – Softbank, who has already invested heavily in real estate firms like WeWork and Compass. (WeWork has been in the news lately for its failed IPO and talks of additional bailout financing by Softbank – this is noteworthy and something to keep an eye on as it relates to proptech's appetite for risk in what some say is a changing market environment.) But Softbank is only one of many large players to enter the proptech space, and this list is growing with names like Fifth Wall Ventures, MetaProp, Trinity Ventures, Navitas Capital, Camber Creek, JLL Spark, just to name a few. But why is investment in proptech surging? In short, the legacy real estate industry has been ripe for disruption for a long time and the potential to capitalize is enormous. A quick overview of the real estate industry provides further clues: • Housing represents 20% of the nation's GDP • 80,000 real estate brokers in the industry • Highly fragmented industry, the biggest selling brokerage company only has a 4% share of national market • 5.5 million homes sold each year • 11 million transactions • Over $1 Trillion of real estate sold per year • Annual real estate commissions are between $50-$60 billion Real Estate, Ripe for Disruption. P U B L I S H E R ' S M U S E The industry is coming full circle where the concept of becoming a one-stop-shop for buying and selling is becoming more of a possibility than ever before. Imagine the possibilities here as companies start to figure out how to seamlessly integrate every component of the real estate transaction, from buying, selling, financing and insuring and making it truly transparent along the way – the sky's the limit. Now imagine Jeff Bezos peering out his office tower window thinking about how Amazon can solve this problem – as I said, it's the new wild west. But what about the real estate agent? A great question indeed. This we know for sure – the role of the real estate agent is changing. The billion-dollar proptech investments are all about making the industry "more efficient," and that's why their first order of business to cut out the middleman in the transaction, the real estate agent. The iBuyer model accomplishes just this – it connects buyers and sellers directly through technology, leaving agents on the outside looking in. But since real estate is the largest financial transaction for most people, it still requires a human connection. The top performing agents in every market will tell you that among their fiduciary obligations to buyers/sellers, playing the role of a psychologist is a major one. In addition, in luxury real estate markets like Los Angeles, relying on algorithms and "automated valuations" to sell your $2 million home is perilous at best. Importantly, for agents, today's disruptive environment is anything but "business as usual." To stay relevant and valuable, you need to be more relevant and valuable! This is why, as an advocate and marketing consultant for top-performing real estate agents, I'm so personally excited to have a front seat to the real estate revolution – it's game time. The house money is in, and you can ignore or bet against it if you like. Better to be informed, adapt, bring more value, and do better work. And, build a brand that delivers on a promise to be "the most trusted advisor" for buyers and sellers in the markets you serve. Until next time, Warren J Dow | Publisher wdow@Southbaydigs.com | 310.373.0142