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Why Real Estate Tech is So Unattractive for Founders

by | Sep 22, 2014

A few days ago, Eric Liu wrote a great post on HN about how real estate technology is so attractive to founders. I thought I would present the other side of the argument.  Full disclosure, I’m the co-founder of software-powered real estate brokerage who has explored virtually every business model in the real estate industry and I’m hugely optimistic that the power of technology can change real estate.

1. We have HARDER problems to solve

Real estate is a people-centric industry – it is extremely unlikely that we will ever see a €œbuy€ button online for homes. Making any change to the industry requires working within a very entrenched, highly regulated system that is set up to keep technology out of the industry.  The brokerage community is constantly attacking Zillow, Trulia and other websites that provide lead gen tools to brokers.

2. The bar for excellence is high

Selling to brokers is an extremely difficult proposition.  Brokers, who are the main customers of real estate tech apps, are notoriously difficult customers. Themedian age of a broker in the US is 57.  They are on the brink of social security checks and medicare.  Creating an app or service that a 57 year-old will easily be able to use is a challenging task.  Moreover, brokers are paid entirely on commission, so your service has to show an immediate ROI or else it will be difficult to get people to give up their hard-earned commissions for a speculative new technology.

3. The market is becoming saturated with an alphabet soup of tech products

In Silicon Valley (and Alley), we may see a lack of multimillion dollar raises profiled on TechCrunch and significant exits as signs of opportunity in the real estate space.  However, there are a ton of companies competing for the money out of broker’s pockets and more springing up each day, as confirmed by a recent visit to the Inman Connect real estate tech conference in New York City. The real estate broker is quickly being put into the same category as the small business owner, who is called upon daily by salespeople from Yelp, Groupon and a zillion other companies trying to sell products to local businesses.

4. The prospective customers are difficult to round up

Real estate brokers may agree that they all need technology, but they have a difficult time implementing it.  One of the biggest barriers for every new real estate technology company, be it a referral engine or a new CRM, is the amount of time needed for agents to set up and stay active on the software.  Brokers have a million different things competing for their attention, from staying up-to-date on market conditions to handling new client inquiries to transaction management.  It takes time and persistence to use productivity tools, often leading to low rates of customer retention/engagement.

5. It is relatively difficult to engage the people in the space

Real estate agents are independent contractors. What does this mean for a tech startup’s salespeople? The broker (the boss/owner of the brokerage) has no ability to influence the schedules and their daily workflows of his/her salespeople (agents).  By nature of their independent contractor status, brokers have a difficult time “forcing” their agents to adopt new technology. Enterprise sales have worked well for some technology companies, but there are about 2.5mm independent real estate agents in the US.  Getting their individual attention can be tough.

6. Good data is hard to come by

Decades ago, brokers set up MLS associations to share listings.  They’ve created huge barriers for new companies to access this €œgolden data€ and as a result many of the popular aggregation sites rely on feeds that are plagued with inaccurate and unreliable data.  Startups face months (if not years) of regulatory hurdles to get the data, and there are often regulations about what these companies can display and how. Once these companies have set up your site, prepare for broker backlash.

***

Despite all the calls that brokers will go the way of travel agents or that someone could come along and do for homes what eBay did for autos, real estate is a people-focused industry. A home is the biggest purchase in someone’s life.

When people are buying or selling their homes, no amount of technology can pat them on their back and reassure them they are making the right decision.

Why is real estate technology such an unattractive industry for founders? Because entrepreneurs have visions of disruption and changing industries.  In real estate, selling technology to existing agents will only go so far.  Real estate will only truly change when companies innovate on the role of the real estate agent, using a combination of process and technology to make homebuying more efficient.

I’m optimistic that disruption is possible, but firmly believe that we have to do things that don’t scale in order to get there.  That’s why we started a brokerage.

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