While real estate is the largest asset class in the world, it’s a segment that is still highly fragmented. With different laws across regions, various types of properties (i.e. commercial spaces/building and residential homes/townhomes) and inconsistent transactional processes, fragmentation in the market has prevented real-estate from adopting technology as quickly as other sectors – until now.
In the last decade, we’ve seen several digital companies and startups use algorithms and technologies to fix specific pain points in the home-buying process. For instance, Opendoor was founded in 2014 to make buying a home more efficient – or as they say “reinvent life’s most important transaction.” Similarly, companies like Zillow and Trulia launched in 2005 and 2006 as “real estate search engines” to help buyers more easily find a home online.
While each of these digital companies successfully addressed a problem in the market, other pain points still existed. And now, we’ve seen most of these early digital innovators, plus new startups and more traditional players, like Keller Williams (through Keller Offers), broaden their scope with technology to become early iBuyer leaders.
iBuyers are property companies that do the buying and selling of a home digitally. These companies are advancing the market and closing fragmentation gaps by using technology to digitize and simplify multiple aspects of the real estate value chain to create a better customer experience. And, while iBuyers still only account for less than 1% of total home sales, they are a transformative force that is taking hold of the opportunity to eat into the real estate market, which in the U.S. alone is worth about $40T.
So, what are the technologies and trends iBuyers are using to fix fragmentation in the market?
Embedded solutions and APIs
One of the key components of iBuying is the use of data. iBuyers use data to create unique but scalable pricing structures for things like appraisals, in which they can appraise homes without having to send out an individual appraiser, like a traditional buyer. For this strategy to work, iBuyers need to know all the elements of a sale beforehand to price out the purchase.
Proprietary analytics and external data sources, backed by a microservice architecture that connects them all via APIs, can feed optimized recommendations and assessments for any part of the sale — valuation, tax, credit score, loan rating, insurance rating, title and closing costs.
With that said, with tight margins of around 5%, time is short, meaning human value creation (renovations big or small) are usually foregone in favor of an algorithmically determined window dictating when to buy or flip. To de-risk transactions, tailored add-ons are important. iBuyers can defend their assets from things like property damage, natural disasters, title defects, liability suits, burglary and vandalism, while adding extra margin.
Fully digital transaction flows via online dashboards and portals
To make home ownership more accessible to the general public, iBuyers are opening up new opportunities through alternative financing strategies that rely on tech and a fully digital transaction flow.
A “fully-digital transaction flow” means that the title, payments, escrow, etc. are all happening within an end-to-end customer dashboard or portal, which is often connected to one’s bank account and mimics a “banking solution.” Having everything in-house enables iBuyers to lower closing costs for buyers and sellers, offer real-time, 24/7 customer support and provide unique financing solutions for buyers.
For example, companies like Divvy Homes allow prospective buyers to rent their future homes, EasyKnock helps owners tap into their equity without much lender restrictions and Ribbon opens the door for buyers with different all-cash solutions to make offers. These dashboards offer a more convenient experience for customers and act as a single source of truth, housing everything they need to know about their purchase in one place.
They also give iBuyers an opportunity to better understand customers’ behaviors through data.
Big data to offer contextual relevance
With the massive amount of data available to iBuyers, they can better understand a customer’s buying journey and behaviors to embed contextually relevant offers to customers, which might have otherwise traditionally been outsourced.
For example, an iBuyer can use data to understand different elements of a home that might impact the type of insurance a buyer might need. But, by looking at data about the history of the home, the neighborhood and the home condition, an iBuyer can offer the most relevant insurance directly into the dashboard and to the customer.
Related findings from a report conducted by PYMNTS showed people are highly interested in insurance that’s embedded by their primary financial institution during the home-purchasing experience. In addition, almost a quarter of U.S. consumers are highly interested in obtaining home warranties in a similar way. The study found that protection that’s offered in this manner is more convenient and can be tailored digitally to the buyer’s needs.
The beauty of the iBuying digital-first approach provides buyers an all-online experience, simple to use interface and new financing constructs that are being developed to meet the needs of the modern home buyer.
Andy Bodrog is Partnerships Director, Property at Cover Genius.
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