

Why Real Estate Tech is So Unattractive for Founders - philipdlang
http://blog.suitey.com/why-real-estate-tech-is-so-unattractive-for-founders

======
rubyn00bie
Preface: I work at Househappy.org a real estate start-up seeking to simplify
the search experience.

I completely agree with the article. I read the one posted last week and sort
of chuckled (asking where the start ups are) because it's not the technology
that's the problem, it's the industry and the market itself... Why?

As the author states, brokers live and die by their commission (my father
happens to be one as well), and trying to get them to adopt a new technology
can be harder than pulling teeth... And in a lot of ways it's completely fair!
Not many tools actually do anything that improve ROI, if anything they're time
and money pits.

Furthermore, Realtors don't often trust people who aren't because they don't
"get" the problems they're facing. Our CEO is a broker of 27 years, and I will
say, without his insight into the industry we would be missing a big portion
of the problems they face. Engineering isn't the hard part, problem
recognition is...

Real Estate is really for people already in the industry who are aware of what
problem's its facing. Its extremely hard to get any footing with no
experience. Plus, why bother now that Househappy is out and about anyway ;-)
(sorry, can't help but shamelessly plug one last time-- we're also hiring!)

~~~
beat
Good on you for having a CEO with real-world experience in your field. :) That
makes all the difference.

So if your target market is the brokers, the trick is providing value to them.
That means more commissions, or more profit per commission. There might be a
market for painkillers and making it less stressful, but that will be a much
smaller market than getting a piece of that commission cash flow.

And for pricing, either you charge a LOT for service, or you get paid per
commission as a percentage, which puts you in the land of state-by-state
regulatory and is hard.

To me, this feels a lot more like the enterprise software market than the
consumer app markets that seem to attract so many startups. I keep seeing
people talk about a B2C approach, and I just don't see how you make a lot of
money at that.

~~~
philipdlang
Spot on there. Selling to the broker franchises in a B2B play is much easier
than selling to individual agents in a B2C play. You have to prove to brokers
that they are going to make more commissions and it is extremely hard to prove
that ROI.

The paid per commission model has been tried by very few companies. It would
expose a company to a significant amount of market risk (housing drops like
2008 and your SAAS play is now dead), but could make sense. The issue there is
tracking closed deals. There are so many complications during the close that
are out of the hands of the software.

~~~
beat
Yeah. I remember closing on our house (the only time I've ever bought
property) and it was so ridiculously complex for even a straightforward
transaction. I can't imagine trying to skim from that on a state-by-state
legal basis and getting enough to justify the cost. I mean, getting $100 out
of it would not be worth it. But getting $1000 out of it would start eating
seriously into the margins of other players - how would you bring enough value
to make it worth letting you participate, especially in the kind of hands-off
way that makes software solutions scale?

------
ARDELLd
As ezl pointed out, the topic is too big for this format, so...the short
version.

Trulia started as a scraper site to pull info that is NOT in an mls. That is
why they first opened in NYC where there was no mls and at present they pull
foreclosure data which is also not mls listed property. They do other things,
but they were not trying to merely replicate data already available via "the
mls" (multiple listing service owned and operated by brokerages collectively
by private membership)

Zillow made their big splash with the Zestimate and then branched out after
they had lots of eyes on the site via the zestimate before they moved into for
sale property data.

Both are what we call "bottom feeder" sites. The big player is Redfin.com and
I don't see you mentioning them. They started as a more data driven tech
experience before they farmed out or bought into a lot of their tech work.
That is the model you want to look at. Redfin takes mls data plus 3rd party
info regarding schools...walk score...many other startup and generally bottom
feeder site data and incorporates it into one display...including the zillow
zestimate link. They did not intend to be a brokerage initially and shifted
gears as the money was in the consumer's pocket and not the brokers' and so
they followed the money and shifted to an RE commission model to capture the
commission dollars vs being paid by brokerages.

As mentioned here they primarily tried to use tech to reduce the cost of
service. They have had to increase their commission from their original idea
once or twice and elevate the agent component as well. Their original idea was
to make real estate a totally online experience. They are the model to study
as to what didn't work and to emulate as to what does.

There is lots of room for more Redfin.com models. There are also many small
companies here in Seattle trying other ideas...but Redfin is the one you
should all study before continuing with this discussion. People first used
them for the tech and not the commission discount. I don't even bother with a
website as I only talk to my clients in Redfin links, even though I could
easily bring them into the mls private portal.

Their original concept was to take 2% market share. A modest goal. They have
far exceeded that goal and have grown BUT they do not go to cheap markets
generally where the commission discount makes no sense business-wise for the
company vs the consumer. Lower commission only works in places where home
prices are high or at least above the national median.

One of my clients sent this link to me and asked for my thoughts. Please
excuse the intrusion.

------
bitcuration
The bottom line is what the business problem you try to resolve. Helping
broker is would be profit prohibitive to brokers, hence the slow tech adoption
rate. Now if look from consumer's view, a big problem is to identify what a
fair price a house should be in a given area at a certain period of time. The
shopping experience only benefit broker which helps to turn on buyer's buying
mode. To consumer such a big purchase there are far more important questions
to answer before a real estate agent has all the advantages to rip off. Apart
from the real estate wall guarded listing, is there any open geographic,
demographic data available from which any meaningful software can be built
independent from real estate industry? A disruption of real estate industry
can only come from outside, and it can lucrative for just considering the
amount of fees a broker has taken away from each transaction today. It is
amazing so few of founders have targeted real estate industry. It truly needs
think outside the box, don't be like zillow or trulia.

~~~
philipdlang
You make an interesting point. One of the issues, however, is that all of the
data is created within the industry. Because brokers create and control the
data, companies must work within the system in order to access the data.

------
ezl
Phil, I wrote a response but HN rejected it because it was too long, so I
posted it on my blog.

[http://blog.ezliu.com/which-problems-to-solve-first-in-
real-...](http://blog.ezliu.com/which-problems-to-solve-first-in-real-estate-
tech/)

TLDR:

Despite directly opposing headlines and section titles, I don't think we
really disagree on much.

Real estate is a big space and there are easy and hard problems. Most of our
opposing headlines are a result of us describing different aspects of the
game.

Happy to chat any time. Email in profile.

------
jaebrown
The housing industry in general is at least a decade back from any other
industry because of regulation. I work in the apartment industry and can
concur that tech could improve it 10 fold. However; this sector along with the
industry has an old mindset and are against change.

~~~
davidwalker20
I totally agree. It's not that new tools need to be made for the existing
brokers, but new companies need to completely redefine what a "real estate
agent" looks like and does. Only then will then will regulation come close to
catching up with most industries.

------
davidwalker20
One of the main problems with so many companies selling to agents (most of
whom don't know how to effectively use the tech they are paying for) is that
the increased spending of agents only solidifies higher broker fees for the
average home buyer...

------
anto210
I would definitely use a "Rent it" button

~~~
philipdlang
Interesting - at what price point do you think people would need to see it in
person first? Certainly some sites have proven people will buy ever-more-
expensive goods online, but real estate hasn't gotten there yet...

~~~
AnimalMuppet
It's not just the price point (though if I'm going to spend $200,000 buying
it, I'm sure going to see it first, including the inside).

It's also that I'm going to have to _live_ in this environment. That noisy
neighbor? The web site isn't going to tell me about that. It isn't going to
tell me about the gang sign on the building across the street (I know, Google
Street View). It isn't going to tell me about the feel of the neighborhood -
whether, at gut level, I'm going to feel comfortable having my wife and kids
live there. There's simply no way I'm going to make a decision about living
somewhere without physically going there first. It's not like renting a hotel
room for a night.

