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SC Business Review - Is Technology Coming to Real Estate?

Written by Les Detterbeck.

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Is Technology Coming to Real Estate?

Press Release: On June 16th, SC Business Review Host Mike Switzer interviewed Les Detterbeck. Their conversation of technology and real estate colliding was interesting to say the least!

Click here to listen to the audio, and or please read the transcript below...

 

Mike Switzer: Hello and Welcome to the SC Business Review. This is Mike Switzer.

The majority of Americans’ wealth resides in the stock market and real estate. Over the past decades, technology has brought the cost of stock trades down to almost zero. The cost to buy and sell real estate, however, hasn’t much changed.

Our next guest believes that lower transaction costs in real estate are finally imminent. Joining us today is Lester Detterbeck who is a Chartered Financial Analyst® in Charleston, South Carolina and a member of SC Chapter of the CFA® Society. We’ve got Les on the phone right now. Les, welcome back.

Les Detterbeck: Mike, good to talk with you again today.

Mike:
Les, how did this topic show up on your radar?


Les: Mike, the Economist recently ran an article on some of the changes impacting American real estate transactions. That got us thinking about how this might impact our clients and our business.
So we did additional research on the topic. We found that there is a whole new industry called property technology or Proptech which will likely have a huge impact on the real estate industry, much like technology has impacted stock trading over the last 50 years.

Mike: Is the liquidity the factor the main factor that makes it so expensive to sell real estate because, of course, it’s an illiquid investment?

Les: Mike, I think it is not only illiquidity but, it’s also the entire process of making a real estate transaction, which includes getting the house ready for sale, listing it, finding a buyer, negotiating the deal, the building inspection, re-negotiating the deal, and then having a closing.  All of this can now can be handled in part or in full by the property tech organizations. The result is that it could be that, with Proptech, real estate will start moving. Currently only 7% of American homes change hands every year. And we’re not suggesting that half the homes are going to change hands every year but perhaps the 7% may rise to 20 or 30% in another decade.

Mike: Could you give us an example of this property tech/property technology and what it’s doing to the industry?

Les: Certainly, Mike. There are three or four main categories. The first is pricing. Most of us are familiar with Zillow and their “Zestimates”.  They started in 2006 with an algorithm which used traditional metrics; such as number of bedrooms and baths, square footage etc. Today, Zestimate goes deeper and has become more accurate. Homeowners listing with Zillow upload pictures and provide additional detail information. The new Zestimate model has an error of less than 2% of the home’s actual selling price. So they have a pretty good idea of what the selling price should be for a home.

Prop tech has also sped up transactions. Discovering listings used to take days. Now Redfin (and others) notifies customers with its “Updates” faster than anyone else about new listings and price changes. Using just a couple of clicks on their smartphone, Redfin customers can “Book it Now” and request a home tour, almost like making an online restaurant reservation. Customers can view the property quickly.

The third item, Mike, is instant buying. So instead of waiting 90 days to sell the house you can now sell the house within a few days. Once it’s sold, there are people like Opendoor that take it one step farther. It buys and sells. Opendoor buys houses for cash and then takes that cash and helps you find your dream for the replacement. They can coordinate for you for the mortgage, appraisals and everything you need to get the new house purchased. So prop tech has knocked down many of the hurdles that have limited the number of housing transactions as we mentioned earlier.


Mike:
So what are we looking at for reducing the cost from the standard 5, 6, or 7% real estate commissions? Are we looking at one or 2% or anytime in the near future?


Les: It seems very likely that commissions could be cut in half- that’s what happened to stock trades 50 years ago. For the agents, if they’re doing twice as many transactions using Proptech (and the rate of commission was ½) their total commissions for the year could be comparable to where they currently are now. But, they would be really focusing on what they do well-which is their highly personal touch.

Mike: Les, thank you so much for taking time to explain all of this to us today.

Les: It’s been my pleasure, Mike. I look forward to talking with you again soon.

Mike: Les Detterbeck is a Chartered Financial Analyst® and a member of the South Carolina chapter of the CFA Society.  He spoke with us today from his office in Charleston, South Carolina.

https://dwmgmt.com/

 

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