How New Technologies are Transforming the Real Estate Industry
Jigar Shah, CPA
07.31.19 | Berdon Industry Insights
Various emerging technologies such as Artificial Intelligence (AI), Data Analytics, Robotic Process Automation, and the various applications developed around these technologies will have a potentially revolutionary impact on the real estate industry. But before the revolution gets underway, the real estate industry has some catching up to do. While technological advances have transformed the way business is done in fields as disparate as finance, medicine, and manufacturing, by comparison, the real estate industry has been lagging when it comes to embracing game-changing, “disruptive” technologies. Until now.
Embracing Disruptive Technologies
Technology has changed the way customers typically search for homes and has expanded the ways realtors can showcase them. Yet some have criticized the real estate industry for being too slow to adopt to disruptive technologies such as Blockchain and cloud computing, which have the potential to streamline processes, reduce inefficiencies, and bring much needed transparency to the buying and selling process with reduced costs.
As Chao Cheng-Shorland, the Co-founder and CEO of ShelterZoom Corp, the first real estate technology company to deliver a Blockchain-based real estate offer and acceptance platform to the mass market has written, “the real estate industry is still in the infancy stages of technology innovation.” Cheng-Shorland believes that Blockchain is an obvious fit for real estate transactions. Proponents believe that with Blockchain-based technology1, digital leases can automatically withdraw rent payments, an autonomous accounting system can automatically record and balance transactions, and a secure electronic record can quickly display a potential buyer’s full credit history. By using smart contracts, buyers and sellers can also speed up verification of documents and even provide a digital identity for properties – displaying former owners and overall costs of maintaining the property, while protecting all interested parties from fraud.
But what about harnessing the power of new technology to improve the performance of real estate companies themselves? Robotic Process Automation (RPA) is one such application that has been shown to increase efficiencies within a firm’s back-office, particularly with regard to accounting and finance departments. What is RPA? Think of it as a software linked to end-user software like Microsoft Excel and various other applications that automate the repetitive, manual, non-judgmental tasks such as keeping track of invoices, payments, renewals and credit applications. RPA has potential applications in areas such as market research, due diligence as well as property management, where automation could be achieved in administration tasks, as well as in facility management where software could assist with floor space allocation.
Data analytics could assist the real estate industry in, among other things:
- finding patterns in consumer trends by analyzing customer buying profiles
- identifying changes to business operations and strategies
- uncovering future growth patterns by utilizing historical data
- identifying new customers, services and products
- reducing costs
Increasingly, real estate investors are harnessing the power of data analytics to identify trends in cities and suburban neighborhoods that can point the way toward new, exciting investment opportunities. Identifying local patterns through the analysis of non-traditional variables (such as the number of pool permits issued or the number of new restaurants in a given area) gives the real estate entrepreneur and investor a leg up on the competition. Stitching together these variables via machine learning algorithms makes it possible to take what, at first glance, might seem like unconnected reams of unrelated data into meaningful and actionable insights. According to a study by McKinsey and Co.,2 “advanced analytics can rapidly yield powerful insights to inform new hypotheses, challenge conventional intuition and sift through the noise to identify what matters most.”
AI and the Smart Building
Meantime, recent technological advances in AI are transforming the art and science of property management. New advances in AI are making buildings “smarter.” For example, AI-based energy platforms are being deployed to optimize the energy required to heat and cool commercial and residential buildings as well as the use of sensors and data —allowing big companies to reduce their office space by as much as a third3. Not only that, AI-based technologies are also being used for lighting, elevator maintenance, and occupant tracking with the aim of reducing operating costs and enhancing the overall tenant experience. AI is also being employed by real estate investment firms in areas like demographic market research and financial analysis.
In a recent Commercial Observer webinar4 hosted by Berdon, Arup Das, CEO of Alphaserve Technologies and AI and a technology adviser for Berdon, said that in determining an AI strategy, both setting key performance indicators (KPIs) and determining in advance how the AI will be used are crucial. Arup said “Real, measurable KPIs are very important, [as is] really understanding where the AI application is going to be used,” he said. “There is no one-size-fits-all approach. AI is not a single platform. You might have multiple platforms you have to integrate to get to your final result.”
Change is Accelerating
The first online real estate listings were posted by realtor.com5 in 1995. Since then, and particularly after social media platforms such as Facebook appeared in the mid-2000s, the industry has witnessed a sea-change in the ways potential home buyers seek out listed properties. The National Association of Realtors (NAR) tells us that four decades ago, long before the advent of our highly inter-connected digital world, people commonly searched newspaper ads and relied on the recommendations of friends when searching for a home. Today, 44% of buyers look online for properties first. According6 to the 2018 NAR Home Buyer and Seller Generational Trends Report, in today’s digital age, a typical buyer uses a mobile device to search for properties online first, looks at websites with photos, home listings, and information about the home buying process, and only then contacts a real estate agent and arranges visits to the shortlisted properties over a number of weeks before purchase.
Track the Millennials
According to the NAR, Millennials make up the largest group of first-time home buyers at 65%, followed by Generation X at 24%. The NAR notes that 99% of Millennials searched for listings online, compared with 90% of Boomers. 58% of Millennials and 46% of Generation X found their home via mobile devices. To capture a greater share of this market, realtors are increasingly turning to virtual reality applications to provide life-like 3D tours of listed properties. This allows potential buyers to experience the scope and scale of everything from the showers in the bathrooms to the size of the windows in the living rooms to the view from the back patio.
The Personal Touch Remains Key
While all these point to an exciting, digitized, and automated future for many aspects of the industry, some worry not only about the costs of maintaining a technological edge, but about the effect it may have on the business of serving clients. Of course, social networking is helpful, but it should not be used to replace traditional networking7, as there is tremendous value in building personal relationships through face-to-face conversation. Securing value within all this digitized data will be an ongoing challenge. That said, these new technologies are opening the door to exciting new opportunities within the real estate industry. The key, then, is how to harness their potential for the benefit of both your business and your clients.
If you have questions, contact Jigar Shah at 212.331.7499 | firstname.lastname@example.org or your Berdon advisor.
Berdon LLP New York Accountants