Recently I have been reading widely on the subject of technology and its likely impact on business. Every such article or book leads me to ask the question, what could the likely impact be of these new technological innovations on the real estate industry?
Writing in Wired magazine, Kevin Kelly estimated that by the end of this century 70% of today’s occupations will be replaced by automation, could this be the case for real estate agents?
In the book by Christopher Steiner “Automate This – How algorithms came to rule our world” he details the way that equity trading has been transformed by automation where over 60% of all trades are made by machines driven by the most complex and sophisticated algorithms, such algorithms are more and more invading all aspects of business and commerce. In the realm of healthcare he believes that the doctor of the future is likely to be driven by (if not wholly operated by) algorithms. A somewhat scary thought, but diagnosis is all about interpreting data and the results speak for themselves.
Anything that requires decisions to be made based on data can be transformed through the power of algorithms that are becoming more and more sophisticated. But what might this mean for real estate?
A number of years ago I heard the quote
“Agents will not be replaced by technology, they will be replaced by agents with technology”
I have used this quote extensively in presentations to agents; to shake them up to the reality that understanding and leverage the digital technology revolution, to become a smart, more connected, more transparent, more social is a key differentiator. Slowly (for real estate is an industry slow to change) agents are apprecaiting the digital world we all live in and they are beginning to appreciate the power of being found by potential clients prospecting for smart agents rather the time-honoured but grossly inefficient process adopted by most agents to prospect for listings.
However my recent insights as to the power, capability and potential influence of algorithms in real estate makes me wish to revise that original quote, now updated to read:
“Agents will not be replaced by technology, they will be replaced by agents with technology, who will then be replaced by algorithms”
I really do believe that technology in the form of highly developed algorithms may well in the coming decade radically change the real estate industry.
Now I am not about to suggest that the whole end-to-end process of real estate will be done online with no human intervention, connection or facilitation; but I think the human element will be marginalized to the extent that lawyers are marginalized in the real estate transaction process to the conveyancing and due diligence component. Agents in the future will be the facilitators and negotiators handling the process after a property has been found, that suits the buyers needs and matches the sellers requirements.
What do I mean by this statement “handling the process after a property has been found that suits the buyers needs and matches the sellers requirements” – let’s unbundle it to allow me to share a future scenario.
The property buying and selling process is inefficient, now I don’t make this statement solely in relation to the real estate agent for which I have previously expressed my views very clearly, but in relation to the marketplace of real estate in a wider sense.
Think about it for a moment, when we decide we want to move house we are given a very narrow shopping list of properties from which to choose. When you apply the filters of location, price and size you will, even in a city the size of Auckland end up with the portfolio of barely 20 houses that are available over a 5 week period that match your criteria. Widen that time period to 10 weeks or 20 weeks and the option list multiplies – wouldn’t we like to have a wider option list. This is where technology can change the very heart of real estate.
Why should it be that we can only buy what is actually on the market? – when the reality is there are probably as many property owners who have not yet put their home on the market but would very happily consider moving right now.
Could it be that the very structure of real estate, this very theatrical process of For Sale signs, open homes and auctions is actually not the best way to facilitate a market for house transactions?
Why could we not leverage technology to be able to allow us to seek out the right house for us right now from all the houses in a given area and price bracket, not just those on the market. Such technology would know what the situation was for all homeowners in an area and be able given inputs by all homeowners identify the propensity of all those property owners prepared to move over a forthcoming time period.
The technology could then align a chain of transactions such that your ideal house could be part of a complete chain whereby the current owner of that house meets their desire to move and so on. The process seems at first very simple, but start to consider all the variables across the 400,000+ homes in Auckland or 1.7million across NZ with all the inter-relational aspects to match the timing, circumstances and needs of all the active property owners likely to move in the coming months.
Such a process would remove the need for all advertising of property, all listing of property and all prospecting by real estate agents. It would though still require the facilitation and negotiation skills of active professional agents. Their services and skills would though be valued on an hourly basis rather than a commission.
Such a system because it is focused on satisfying buyer demand rather than facilitating vendor supply has the capability to radically transform the very form of property transactions, create far more liquidity in the market and also potentially cushion property market price cycles as the efficient satisfaction of a property chain removes the price pressure of the current market.
Maybe this scenario is too far-fetched but remember how dating and personal connections have been revolutionized not so much by the internet as by the algorithms that power personal matching sites – what is so different about the algorithms being applied to property in much the same way?