1) Fractional Real Estate Investing
2) Increasing Demand for Virtual Homes Tours
New apps and softwares are breaking into the real estate market every year that combine automation and communication to create PropTech (Property Technology). The PropTech boom has demonstrated that almost all data regarding investing, managing, and owning real estate has the ability to be digitized and streamlined. According to the Center for Real Estate Technology and Innovation (CRETI), a record setting $13.1 billion was invested towards real estate technology and PropTech businesses in the first half of 2022. These investments are one of many signs that PropTech will continue to shape real estate for the foreseeable future. In this blog post, I will outline three PropTech trends that are changing the way we interact with real estate.
1) Fractional Real Estate Investing
The financial landscape of investing has been rapidly changing thanks to apps such as Robinhood and Webull. This shift is not only attributed to stocks, but also real estate investing as many individuals are realizing the power of this asset class. The large financial barrier of entry for real estate investing has previously deterred many retail investors from starting. This has created a market for PropTech companies to focus on creating fractional property investment opportunities.
Fundrise is accomplishing this by allowing consumers to invest in a portfolio of private commercial real estate with as little as $10. You choose your portfolio strategy and the amount you wish to invest without managing the deal, all via your computer or smartphone. Fundrise is combining fractional real estate investing with PropTech to create lower costs of entry to real estate investing.
The adoption of blockchain within the real estate industry creates powerful PropTech opportunities for fractional investing. Companies such as SolidBlock distribute property ownership over a finite number of representative tokens. Thus, providing consumers with the opportunity to own tokens and receive a fraction of property ownership and revenue. This concept is fairly new regarding implementation but could possibly be the future of fractional real estate investing.
The combination of carefully selected real estate deals, easy-to-use user interface, and low financial barrier of entry makes fractional real estate investing appealing for those looking to get their start.
2) Increasing Demand for Virtual Home Tours
Virtual home tours became increasingly popular among realtors during the COVID-19 pandemic, as social distancing restrictions were in place.
Zillow began field testing its 3D home software in January 2018. Currently, any seller can simply download the Zillow 3D Home app and begin filming. Listings advertised on Zillow with a 3D Home Tour were “saved” 32% more often than listings without the feature. Virtual home tours also help the seller find a buyer by including out-of-state buyers and iBuyers who may not be able to view the property in person.
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Matterport is another PropTech company specializing in virtual home tours. They provide 3D tours with interactive features that are easily shareable. Commercial real estate and vacation rentals can benefit from Matterport by increasing occupancy through prospective tenant interaction with the tour. Virtual home tours can also provide investors with a better understanding of a property and help realtors find buyers. Virtual home tours gained a lot of traction during the COVID-19 lockdown and seem to be sticking around.
3) Decline of iBuyers
iBuyer stands for instant buyer/offer, a PropTech trend streamlined through the internet and machine learning. An iBuyer is one alternative to listing your property on the market. iBuyers usually come in the form of a questionnaire on a website/app followed by an instant offer for you to accept or decline with a possible in-person walk-through. Although where they differ from traditional investors is that they rely solely on algorithms to make profitable investments. Zillow and Opendoor were two of the largest institutional iBuyers who both have had major setbacks recently, and this is largely attributed to the COVID-19 pandemic and their disruption of the accuracy of these algorithms.
Opendoor
Opendoor is an iBuyer that combined AI and machine learning to deliver home owners with a quick “market-value” offer. This is an alternative to listing your home on the open market with an agent. They would buy the property for below market-value, complete repairs, then sell the property for profit a few months later. Off-market offers below market-value are needed by many sellers, such as an investor needing quick cash for a different investment. However, Opendoor was taking advantage of their clients. As of August 1st 2022, the FTC is fining Opendoor $62 million for misleading sellers into thinking they were receiving a market-value offer, which resulted in sellers missing out on thousands. This is due to them making sellers believe they would receive the same or more money from their offer instead of listing on market.
iBuyers support balance in the real estate market by providing sellers with an alternative option that can be quicker/easier than traditional methods. However, Opendoor went beyond this by deceiving sellers and losing home owners thousands on their property.
Zillow
Before October 2021, Zillow was also a major player in the iBuyer market with their PropTech software, Zillow Offers. Zillow Offers was one of the biggest competitors for Opendoor but was never accused of misleading sellers with their off-market offers. However, in Q3 2021 Zillow announced they had lost around $304 million from the program because of homes bought at too high of a price. The housing market during COVID-19 became too unpredictable for Zillow Offers to continue. As a result, Zillow laid off 25% of its workforce.
The Future of PropTech
PropTech is molding the future of real estate by creating more fluid transactions, efficient advertisements, and greater accessibility to investing opportunities.
Northstate Equity is a technology-based real estate company that utilizes PropTech software everyday to conduct our business. We are eager to see how this sector will continue to advance the real estate industry.
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