PropTech And Other Digital Transformations In Real Estate
The real estate industry is rather conservative and unwilling to change. Companies operating in this market have no desire to abandon the usual business algorithms, especially since they work quite well and serve their purpose.
And although the impact of IT innovation on the real estate area is less than on the financial one, the changes do happen. We see more and more cool applications and other digital services (PropTech technologies) that speed up and simplify the process of buying and selling property, improve construction activities, and more. As they say, you cannot stop progress. And you shouldn't stop it, for that matter.
But what is digital business transformation? How does it relate to PropTech innovation? We'll answer these and other questions in our article. After reading it, you'll find out what digital transformation means for businesses in general and your company in particular.
What is a Digital Transformation in Real Estate?
This kind of transformation means the use of advanced IT tools, digitalization, moving online: call it what you like, the principle is exactly the same.
Why is it happening? First, we have to deal with urban growth, which entails the development of the real estate industry. Secondly, the expectations of consumers accustomed to on-demand services are growing too. Third, real estate companies, along with construction corporations, need new tools to compete in the saturated market. So, you can't do without digital transformation, aka PropTech!
Okay, but what does digital transformation mean? Specifically? What does it involve?
Let’s go deeper, shall we?
The PropTech term consists of two words: Property and Technology. So it's about creating technologies to work with the property at an entirely new level. The approach to construction, real estate services, any aspects related to property management is changing (to be precise, it has already changed but keeps evolving).
The process of digital transformation in the real estate industry began in the 2010s when the first aggregator sites with information about property had appeared. But these were still rather early, little-functional projects, innovative solutions didn't exist yet to radically change the market.
But the industry has made remarkable progress in the past few years. And today PropTech implies the use of such innovative technologies as smart home systems, 3D modeling, the Internet of Things, end-to-end marketing data analytics, big data, AI and machine learning, AR/VR, etc (see digital transformation trends we’re discussing below).
Goals and objectives of digital real estate solutions
The main task of digitalization is to improve the interaction of people, whether they are consumers, realtors, or business owners, and the real estate market at different stages: from design and construction to management and operation.
So first of all, it becomes possible to construct new buildings faster and safer. And the subsequent maintenance of these buildings is also simplified thanks to the introduction of digital technologies (we'll talk all this through later in our article, for now, we're just outlining the general idea).
And what is a digital business transformation in regard to real estate services? The key point is to simplify the process of buying, selling, renting real estate. The goal of PropTech projects is to provide the end consumer with maximum comfort and quality of life while ensuring the high efficiency of business processes.
And keep in mind, PropTech for realtors has nothing to do with just a website with beautiful images, the whole concept is much more than that. In essence, we're dealing with a reorganization in the entire business scenario.
Why Do We Need Digital Transformation in the Real Estate Industry?
Real estate digitalization has accelerated mainly due to Covid-19, which has forced almost all businesses to go online. Even the most conservative companies used to working the old-fashioned way (and there are many of them in the real estate industry) have no choice but to explore PropTech examples and implement at least the simplest ones.
And what do the statistics have to say about it?
PropTech Real Estate Statistics
According to the KPMG report, in 2021, about 35% of US real estate companies drew up a transformation plan and began to follow it. And more than 65% of these companies, preparing to introduce even greater innovations, deployed an advanced IT infrastructure.
In general, real estate analysts predict the further evolution of PropTech: by the end of 2022, the number of projects will have grown 3-4 times.
Growth of interest of venture investors in property tech companies
Real estate startups are increasingly adding to the number of investments attracting projects and inviting more and more interest from venture capital funds, which is proven by the facts. So, for example, from 2018 to 2020, PropTech investments had risen by 300%, starting from the $ 8+ billion mark.
And the growth of investments didn’t stop there. In the next couple of years, according to Glorax Infotech experts, investments in PropTech will have increased by at least 30% (and probably even more).
The first real estate PropTech companies
Always, with any changes and development, there are certain leaders: those who were the first to understand the importance of innovation and business growth. They usually serve as an example to other market players. In the case of PropTech, we can name Compass and Opendoor: both projects became “unicorns” (a company whose estimated value manages to reach a billion dollars in a very short time).
Compass offered a mobile app aimed at renting real estate. The 1st of its kind, it was focused on helping realtors in their work. Opendoor, soon to follow Compass, automated the buying and selling of property. Both startups are of American origin and still exist (and they’re doing great).
Who should use PropTech innovations?
These solutions would be an aid to real estate agencies, construction corporations, realtors: all those market makers who want to improve their businesses with cool digital tools and become advanced property tech companies. Plus, PropTech is a promising startup idea.
But what are digital transformation services focused on if we’re talking about a startup with no experience in real estate? In such a case, we can offer two main options:
Startups, which want to partner with existing real estate businesses and offer them tools to improve their efficiency;
Startups looking to replace real estate experts (as much as possible). A striking example is p2p platforms (which will be discussed pretty soon).
Latest Digital Transformation Trends/Technologies in Real Estate
Let's start with the trend related to the creation of new real estate objects, the so-called BIM concept.
The name speaks for itself (BIM means Building Information Modeling). It’s about creating (modeling through IT tools) digital twins of real estate objects in order to facilitate, speed up, and improve the planning, design, and construction stages. BIM allows automating a lot of routine processes, optimizes costs, and ultimately provides the best result (which is crucial during construction, because a reliable building implies the safety of its inhabitants).
BIM is especially effective when combined with other digital innovation trends discussed below (say AR/VR).
IoT (Internet of Things)
IoT is being widely used in the real estate industry and therefore has become an integral part of PropTech.
By the way, if you have no idea of what the Internet of Things is, we suggest you read our other article on IoT development (the topic is too extensive to pay attention to now).
In short, the Internet of Things turns homes, offices, utilities, construction areas, whatever, into smart objects using sensors. These sensors collect a huge amount of data and send it to a special control center to process, after which the IoT system performs the required action (if necessary). For example, it may lower the temperature if the sensors showed that it became too hot in the room.
And undoubtedly, a house equipped with smart technologies costs more, and realtors can sell it much better (and for a lot more).
Big Data & Predictive Analytics
Big Data improves efficiency in nearly every area, and PropTech is no exception.
Moreover, a lot of what we discuss in this section, describing digital transformation trends in real estate industry, is based on the correct use of information (just think of the smart home sensors we've mentioned earlier and the data they collect). Of course, the more complex the system, the more data flow, the more difficult it’s to process it... and the better the result if you figure out how to handle it.
If we talk about real estate, the most obvious use of Big Data is forecasting the demand for certain property objects, an accurate assessment of their value, and so on. Many companies have already implemented some of these digital real estate solutions: for instance, Zillow patented its special Zestimate formula, which resorts to Big Data to determine the value of US houses.
However, the range of use of Big Data is much wider. It all depends on the tasks of a particular project.
And of course, there is no getting away from artificial intelligence technologies, which are also increasingly used in PropTech.
Just like Big Data, AI elements are involved, in one way or another, in the implementation of many of the digital transformation market trends we're describing. After all, artificial intelligence technologies imply the ability of IT systems to develop, self-learn, even without human participation. And such an ability can be embodied in different areas.
When it comes to buying and selling real estate, AI solutions are becoming an indispensable assistant to realtors in providing their clients with the most personalized offers. As a result, the number of successfully closed deals increases significantly.
AI is also being introduced into construction: we mean analyzing geo-data, dealing with risks, planning an evacuation strategy in case of an emergency, and so on.
We already mentioned AR and VR when we opened up the conversation to digital trends in real estate (BIM, remember?). Let's describe these concepts in more detail.
AR is augmented reality, which, as the name suggests, augments our world with certain objects. To take advantage of AR technology, it is enough to have a smartphone with an activated camera and a suiting application.
The video below shows you how to use AR when selling or buying property.
So we're showing a certain property (say, a house) in its ideal form, even if in reality it is far from perfect (for understandable reasons such as repairs, construction, etc.).
VR (virtual reality) works in a similar way but gives an even more realistic experience. However, VR implementation requires additional equipment such as special helmets and goggles, which can present an extra challenge. Besides, the introduction of virtual technologies is a rather laborious and costly process, so it's not always worth it. All the more so because AR is quite enough to achieve the desired result.
Essentially, AR, VR are marketing tools. They improve customer interaction and his shopping experience several times. Consequently, we’re dealing with a striking example of digital marketing trends in real estate.
The real estate market is closely tied to the financial one, so no wonder that the industry required new products combining FinTech and PropTech technologies. And these products have appeared. They help to perform all sorts of financial transactions, including rent, loans, mortgages, and more.
Such solutions offer effective digital optimization of the above activities and ensure their transparency and security.
In addition, FinTech/PropTech addresses the so-called smart contracts, which have become especially popular lately. They are blockchain-based and self-executing (i.e. no intermediaries are needed to close a deal).
Drones should also be mentioned among the latest trends (digital transformation in the real estate sector).
You probably know what a drone is. In simple terms, it’s an unmanned aerial vehicle that flies around a certain area and captures what it sees with a camera. The resulting photos and videos would be useful to realtors when working with clients.
Of course, you cannot look over the apartment with their help, but you do can view the ground around the house, so to say. And it’s better than nothing.
PropTech examples include all sorts of peer-to-peer resources, which allow conducting real estate activities and transactions without intermediaries (sometimes even without a realtor). That is, the seller of the property directly contacts the potential buyer through a digital platform. The same applies to rental housing.
Such p2p websites and applications should offer the possibility to evaluate each proposed property remotely (using 3D tours, photographs, videos, etc.).
The experience of many real estate PropTech companies proves that up to 85% of services can be carried out in instant messengers and chatbots. The user opens a chat (or the chatbot is activated automatically), indicates his wishes, and receives a result (say, a selection of property options, to buy or rent). Then he chooses what he likes, fills in the basic information, and gets an invoice.
Surely, a chatbot is unable to go through the deal with the customer from A to Z, but it'll significantly simplify the work of the staff anyway.
What are the Challenges of Digital Transformation?
Well-established processes. All processes associated with the sale and purchase of property objects have long been established and thought out to the smallest detail. The buyer or investor doesn't have to view hundreds of properties, they only need to visit those that have been previously selected by the agent according to the specified criteria. The paperwork is also under the realtor's control. Everything seems to be convenient and transparent... The point then arises: why change it?
We shall notice that progress cannot be avoided anyway, and the sooner you understand this, the more chances you have to join the number of successful businessmen (or remain among ones).
Conservatism. The above item leads to people becoming conservative. They fear change, especially if they don’t fully understand it.
The complexity of PropTech implementation. How to start the digitalization of the company? How to organize transformation processes in the best way? What solutions to use? What is a digital transformation framework and how to choose one? These are far from the only questions that businesses are forced to answer when they decide to implement PropTech. Alas, they inevitably face all sorts of problems, from choosing a technology stack to building remote communication with a client.
The imperfection of technology. While technological advances are undeniable, some are still dreams. For example, not always a virtual tour of a house or grounds can replace a real one. However, no one knows what the future holds and what might become possible tomorrow.
The high cost of implementation. Some technologies (described in the section on digital trends for the real estate sector ) can be implemented only with significant financial investments.
If you don't want your business project to fail, then you have to admit that using PropTech is critical. And only one thing is important: to build a well-thought-out plan of action so that the result meets your expectations. In other words, you need to develop an effective strategy.
What is Digital Transformation Strategy?
If you're ready to embrace change but don't know where to start, here's a simple series of actions:
Formulation of the concept. In explaining PropTech meaning to you, we mentioned that transformation concerns different aspects of the real estate market. And you should start by choosing one of them:
What will be your niche (construction, buying and selling real estate, etc.)? Do you intend to strengthen the influence of existing companies or replace them entirely? Maybe, you already have your own real estate business and just want to ensure its growth.
What exactly are you planning to offer? What user problem are you going to solve? These problems include the inconvenient process of buying/selling/renting a new home, routine work of a realtor, and the like.
Budget planning. Now that you’ve figured out the goals and objectives, you should determine how much money you can allocate for development (the scale of your project depends on your budget).
Hiring a team. You yourself are unlikely to be able to transform the infrastructure of your company and prepare your business to implement PropTech.
Project implementation. What are digital transformation services (the ones your hired team provides you with) including? Let's list the main points very briefly:
Selecting digital transformation tools that match your goals and budget;
Optimization of existing business processes using chosen digital real estate solutions (the task is to automate everything you can), if we’re talking about an existing company. If you’re just starting to conquer the property market, then you have to start from scratch;
Staff training, if required.
Support and development of the project, because PropTech is only at the beginning of its journey.
What are Digital Transformation Examples In Real Estate?
There are a lot of cool examples worth describing, and we could do so indefinitely. To avoid this, we've selected a few of the most relevant and trending of them: those that are included in the annual ranking of the best companies according to YCombinator (which is a cult accelerator).
YCombinator analyzes different areas of activity, and in 2021 real estate businesses have made its top list too. An important nuance: understanding the importance of digital transformation in the real estate sector, these companies implemented PropTech technologies into their processes. Makes you think, doesn't it?
Let's start with a service aimed at automating mortgage transactions. The company owning Snapdocs is located in California, San Francisco, and has been in operation for almost 10 years (since 2012).
The Snapdocs founders decided to create a platform in question because closing a mortgage deal in the United States is a long and tedious process, which may take more than a month. And online tools make it a little easier and faster.
Snapdocs actively uses AI elements (remember digital transformation trends/technologies in real estate, which we discussed?). Among other things, artificial intelligence analyzes whether a particular document can be formalized and signed in digital format.
The second item on our list is Guesty: a service created in 2013 and targeting experts in real estate rentals. Its task is to automate their routine activities.
The project belongs to Israeli guys, brothers who used to rent out their apartments through Airbnb. It wasn't as easy as the Airbnb ad promised them, they had to work really hard. So they decided it was time to create a special resource to make things simpler (more than Airbnb already did).
This is how the Guesty website came into the world. The user posts rental ads on several popular sites (Airbnb, TripAdvisor, Booking) and manages them using a single system. Guesty also provides access to statistics, analytics, calendar, and more.
And by the way, Guesty, on the lines of Snapdocs, uses AI and machine learning technologies.
Besides AI, our digital innovation trends included AR/VR. Matterport is based on them and even known as “virtual reality for realtors”.
This Californian company has been successfully operating for ten years. It focuses on 3D space modeling and the creation of virtual and augmented reality. The main goal is volumetric images of premises and 3D tours providing users with an unforgettable shopping experience.
Of course, a company of this level requires a hefty investment: let's say, Matterport experts had to develop a special 3D camera, set up powerful cloud storage, create a complex system to view and edit 3D models, and so on.
But the owners of Matterport understand what digital transformation means for business and are ready to fork out. And their expectations and hopes have been fully justified: the list of the company's clients include such big names as Apartments.com, Cressy & Everett, Carpenter Realtors, and many others, no less significant.
After RE/MAX, another Matterport client, took advantage of their solution to integrate 3D tours into their business processes, the number of successful deals they concluded increased (95% compared to the previous 60%).
ZeroDown is, too, a California project. The company is quite “young”, it has existed only since 2018. Despite this, it has already managed to get the name.
The essence of ZeroDown is to automate the process of buying and selling real estate. Moreover, the company provides customers with the opportunity to move into the house they like right away, even without a down payment. However, the condition of the deal is a documented promise to buy the house from ZeroDown within three years.
We’ve covered many hot questions about PropTech technologies, it remains to answer the last one: have you found the IT experts, skilled enough to create advanced PropTech software products yet? If not, our team is up to your challenge!