Tag: financing

How Technology Needs A Better Approach For Sustainable Success.

Let’s talk about the elephant in the room.  You know, the one where robots take over the jobs of humans.  Today, let’s talk about the jobs in real estate and lending.

Or, to be more specific, the disruption that is forcing changes across the industry.

Hold on, that sounds technical.

It is, but not really.  Let’s use common sense.

Disruption: A radical change in an industry or business strategy, especially involving the introduction of a new product or service that creates a new market.

Disruption is also known as “forget about the old way of doing things, it no longer exists”.  This new way involves something faster and automated, which typically means cheaper.  But remember, as everyone races to the bottom with their giant Amazon companies, the floor doesn’t stop at zero.  There are negative numbers too, meaning many companies are losing money with the hope that one day they grab enough low-paying customers to compensate for the overhead.

Do you want another scary realization?  The next time you sign up for something that is “free”… if you aren’t the paying customer, then that means you are the product being sold.  Yup.  Welcome to technology.

Editors Note: We don’t sell your name or data, even though this is free.  Thanks for reading.  Cheers!

Both the real estate and lending industry have been ripe for disruption for decades.  We’ve talked about it for years, but it is happening before our eyes.  Today.

In a lot of ways, I’m super excited about the new innovations that are coming to light.  In other ways, it scares the bejesus out of me for the consumers who just don’t know any better and don’t enough know enough to ask.

Before we dive into what robots and artificial intelligence are doing, let’s look at where companies are heading with their business models.

There have been countless news stories and opinion columnists citing statistics and reports on start-ups poised to shake things up.  Admittedly, the numbers are impressive. Investor funding runs well into nine figures for the two largest direct homebuyers, Opendoor ($320 million) and OfferPad ($260 million).

As entrepreneurs and investors have continued to gravitate towards the various opportunities offered within real estate, the Real Estate Tech ecosystem has grown in both size and scope. Since 2012, Real Estate Tech companies have received over $6 billion in funding, with companies raising $2.6 billion in venture capital in 2016 alone, a substantial increase from the $1.9 billion reported in 2015. With over 100 real estate focused startups receiving early stage funding in 2016 and later stage tech enabled real estate companies like Compass (raised $450 million in early December 2017) and Redfin ($138 million IPO in July 2017) raising substantial amounts of capital, the sector has undoubtedly piqued the interest of consumers, investors, and industry players alike.  Not to mention Zillow.

What are these companies doing that makes investors so excited they are willing to pump in hundreds of millions of dollars into them?  They are creating mega-tech one-stop-shop companies that are meant to take over your life.

First up, let us look at Rocket Mortgage.

I’m sure you have heard of Rocket Mortgage by now.  Rocket Mortgage is owned by Quicken Loans, and had it’s coming out party during the 2016 Super Bowl Ads. According to housing wire, Quicken Loans was #1 in 2017 by transaction volume and looks to be heading to the number #1 spot for 2018 as well.  Quicken did have true innovation when it comes to Rocket Mortgage, and they were rewarded with the top spot in the country for lenders by both the highest number of transactions and largest volume of mortgages.

(Full disclosure: I’m not a Quicken Loan fan, but I can still respect some of the technology they have created and implemented into their company.)

So, what did Quicken Loans do that is different than many lenders?  A couple things.

• Ease of Use. They turned what used to be a cumbersome process of applying for a mortgage to a thing you can do from your phone in your own time, saving consumers a lot of the hassle.  They took a process that would typically take 30-60 days and crunched it down to roughly 10 days by automating most of the process into an algorithm.  I think they say something about approving (or denying) your loan in as little as 8 minutes.  The appraisals delay the process to 10 days, since those are still are done by humans.
• Centralized Data. They linked almost everything you do online into a single portal to help speed the process.  Forget the days of having to comb through paper bank statements and email those to your lender or drop them off.  Quicken links their portal into your bank directly to access your bank statements, current available funds, and even history of deposits.  Some employers now verify your employment status through their app, and no longer require people to talk with managers.  It’s not 100% online, but it is sure close to it, and probably will be in the very near future.
• One-Stop-Shop. The Quicken Loans family looks a lot like it’s trying to be the Amazon of lending.  Did you know, Quicken owns approximately 81 other companies (not including their additional “partnerships”) with everything from Financial Services, Financial Tech Companies, Online Technology Companies, Home Furnishings, Investment Services, Architect Services, Accounting, Billing & Receivables, Website & Design, Gaming, Hotels, Casinos, Home Flipping and Renovations, Online Schools, Security Services, Property Management, Real Estate Sales, Multiple Venture Capital Firms, Self Driving Cars, and countless companies all aimed at online technology, web presence, and improving efficiency for business.

Hey, that’s just one company.  You can’t use one company as an example of where the whole industry is heading!

That’s true.

Let’s look at the nation’s number two lender.  LoanDepot.  LoanDepot launched mello Home earlier this year, which is a service that connects buyer clients to their agents.  Sounds like another “one stop shop” approach, like Amazon.  And, it is.  I won’t make you sit through the list twice, but it’s pretty much the same thing with a variety of separate companies all brought together under one roof.

What about number 3, 4, 5, etc?  Yup.  They are all attempting to create a one-stop-shop for services with the hope of having you spend less time shopping services between companies and more time just writing them one big fat check instead of a bunch of small ones.

Ok, so what about robots and artificial intelligence taking over human jobs?  Should traditional brokerages feel threatened?  Maybe.  But, probably not.

While these technological advances are meant to eliminate the human element, humans are still necessary in a lot of ways.  Elon Musk (PayPal, Space-X, Tesla, SolarCity, and The Boring Company) will tell you that humans are underrated and that he brought people back into Tesla to help smooth the process and speed things back up in his production line.  His robots got too unwieldy and slowed things down!

So if robots alone are too cumbersome and humans alone are too slow, what is the answer?

A human-machine symbiosis.  That is what we should be talking about.  Creating robots to enhance human services, not to replace them.

I’m sure you have heard the opinion that real estate agents and lenders will soon be replaced by technology.  However, I tend to think that the agent-centric model has staying power, though it will look a bit different in the future.

In my opinion, the new technology (whether you mean software, applications, block-chain, robots, etc) should work to accelerate the closing process and smooth out some of the hurdles.  Loans could become faster.  Property information may be easier to find.  Title issues could be quicker to address or monitor.  But at the end of the day, it still involves people.

While this massive collection of data and introduction of search portals has increased the amount of information available and speed to get to it, it has not provided anyone with the context necessary to make a decision.  Media company models focus on optimizing for page-views and clicks, yet fail to support crucial channels of information exchange between agents and clients.  This is proven by the increased demand for agents over the last two decades even with the introduction of platforms such as Trulia and Zillow.

Why do I think that real estate and lending professionals will remain essential?

Simply because humans are better at some things than robots.

For example:

• EMOTIONS. First, buying a home is typically the largest financial transaction in a person’s life.  It is highly emotional, and occurs infrequently.  Consumers want practical, cultural, and emotional guidance as they navigate this decision.  Why can I stand here and say without a doubt that people want guidance in this area, despite the available online information?  Because we have already created a new industry of “consultants” for online services.  For example, you hire a person to manage your SEO, a person creates the content for social media, and you can even hire a consultant to improve your odds with online dating!  Seems a little backwards with the “online”, doesn’t it?  This is want people want, so I’ll take it as a glimmer of hope.
• QUALITY OF CARE. Second, real estate agents and lenders perform many functions which software can only partially eliminate. Certain tasks should and will be automated, such as scheduling and paperwork.  We recently had a lender in Washington State who had their loan documents signed with a notary through a video-conference session.  But, technology doesn’t allow for coordinating with all the other parties, staying up on local policy changes, politics, etc.  The dirty word of “closing” a sale still requires a human touch because it requires you to consider all the options around the property aspects, your lifestyle choices, and your desires for the future.
• Hyper-Geographic Expertise. Third, as much as we may not want to admit, agents remain the most cost-effective method for sellers to find buyers. Hyper-geographic expertise allows agents to offer buyers a smooth process to closing and access in a private real estate marketplace.  You are still dealing with people’s homes and businesses.  While automated brokerages seem elegant and low-touch, when you factor in the human pieces and the various conversion points necessary to help a person buy a home (marketing, filtering real buyers from the tire kickers, protecting clients from being taken advantage of by vultures, and mid-escrow re-negotiations when something goes wrong, etc.), these programmed platforms are far less efficient and likely lead to failure when left on their own.  Although humans are not scalable, they are a fundamentally cheap mode of customer acquisition and the best assurance your transaction makes it to closing.
• Relationships. Finally, real estate may be about properties, but it is ultimately an industry that centers around people.  Technology can support those relationships, but it will not replace them.

Given these observations, I believe that a successful real estate platform will augment agents with data and tools to accelerate their business and serve their clients better.

Some areas where I hope to see great improvements are:

• Embrace Technology: Whether it’s new ways to streamline transactions (DocuSign, zipLogix, virtual notaries, etc.) or better ways to market properties (virtual staging, virtual tours, etc), there are countless ways to make the customer interaction more seamless.
• Targeted marketing: Most real estate marketing takes the form of untargeted spray and pray tactics. This is true even with Facebook ads (don’t get me started!). What we aim for enables intelligent, personalized agent-to-agent marketing by matching a buyer’s demand with available inventory, or matching it with potential inventory through something like Zillow’s Make Me Move concept.
• Property pricing: At present, there is no way to “guarantee” what a property is worth. Zillow doesn’t have the answer either and will pay you one million dollars to help them figure it out.  Pricing is both art and science and requires a lot of personal analysis, local knowledge, and old-fashioned boots on the ground approach, day-in and day-out, in order to be competent in the game of ever-changing market values.
• Streamlined Process: There is still a lot of manual labor involved with buying a property.  Lenders, such as Quicken Loans, realized this and have tried to streamline as much as they can with their app.  Maybe one day, the process will be streamlined across the board and all you need to do is schedule the closing date and then automatically your utilities, loan, insurance, and more are all pro-rated and magically accounts are opened and closed as needed.  That day might be closer than we think.
• Changing Ideals: With Wi-Fi capabilities and/or cell-phone coverage almost everywhere (even a wi-fi hotspot in my truck!) people are no longer tied to an office.  You can browse properties or sign contracts with the swipe of your finger while sitting at a Little League game or out on the beach.

While the technology to find data or accomplish transactions has improved, the basis for decision making or in-depth understanding about the process has not progressed forward, and in many ways I feel it is taking leaps backwards.  Maybe there will be a change in direction and people will begin to expect a higher level of competency with all this technology we are creating.  The data is there.  We just need to teach people how to use it!

Moving forward, let’s focus on integrating humans and robots, not replacing humans with robots. 

If we are going to see any real advances in real estate technology, it will be to improve the agents or lenders ability to educate their clients by interpreting and telling stories with data.  Buyers and Sellers will want someone who can tell narratives about past work in a neighborhood, draw attention to unusual features of a property, and help frame the price of a new home in terms of financial and demographic trends.  Real estate agents and lenders with sophisticated tools will likely perform these functions better than automated brokerages for decades to come, but it takes work.  Don’t forget that on the other side of that post is a real live person.  Be nice.

In the words of Elon Musk (ok, it was a tweet), “Humans Are Underrated”.  Finding applications that help humans become more efficient is a better bet than creating applications to replace humans completely.  In real estate and lending, there will always be a demand for humans who are experts in their field and provide consumers with more meaningful experiences.

Need help getting started?  We are happy to point you in the right direction with data that can be trusted and help you make connections with the people you need to know.

Jen Hudson   |   (206) 293-1005   |   jen@hudsoncreg.com

Duane Petzoldt   |   (425) 239-1780   |   duane@hudsoncreg.com