Jake Fingert
Over the last decade, one tech sector that affects everyone’s quality of life — from where we live to what we put in our homes — has come a long way. Proptech has made our lives easier with innovations like smart homes, Airbnb, and the ability to shop for and secure a mortgage from our phones.
But major gaps, and opportunities, remain.
For example, the single-family residential market is enormous. Approximately $2 trillion worth of homes were sold in 2021, per CoreLogic. But buying a home is still an excruciatingly difficult process. A team from Keller Williams identified 180 things a seller’s agent does, and even this list, as exhaustive as it is, does not fully account for the many other players in a typical transaction.
Today, buying a house is a lot like running the steeplechase: you have to sprint between obstacles and pray you have the stamina to survive it all. It should not be this hard. So let’s fix it. This is a call to current and would-be proptech entrepreneurs to solve the problems that are close to home.
There has arguably never been a better moment to get started. Capital is searching for good ideas and quality execution. In 2021, venture capital poured a record $11.7 billion into proptech. While the market has started to slow down this year, driven in part by factors such as public market performance, inflation and higher interest rates, there is still strong investor appetite for great and novel ideas with excellent execution.
Starting a business is hard, but we now have a path for proptech, lined with funders and advisers, that can propel entrepreneurs over early obstacles through to maturity and deep market penetration.
Proptech can solve many fundamental home-buying issues
Proptech still has fundamental problems to attack, including one of the most common: purchasing a home.
Below are eight high-leverage home-buying pain points that have not been sufficiently addressed. Because of the enormity of the housing industry, even marginal improvements in some of these areas will be greeted enthusiastically, and big leaps forward will be handsomely rewarded.
Housing affordability
The challenge: Many Americans cannot own a single-family residence, regardless of how long and how wisely they save. High construction costs, strong demand pushing up prices on relatively low supply, and low incomes can make homeownership difficult or impossible.
This is not a problem solely for lower-income households. The National Association of Realtors’ Housing Affordability Index, which measures the degree to which a family with the median income can afford monthly mortgage payments on a median-priced home, fell 30% between April 2021 and April 2022. Housing is taking up a greater percentage of Americans’ income.
Technology can help mitigate the affordability crisis with construction tools that drive efficiencies, lowering costs and increasing supply. More flexible financing arrangements, such as rent-to-own and home equity investments, will also help.
For example, Landis works with people who may want to build credit history or savings before applying for a mortgage. They will buy a home, rent it to the prospective homeowner, then sell it to the tenant when they are ready to take on a mortgage. Unison gives homeowners up to 17.5% of their home value in cash and take compensation — and part of the appreciation — whenever the home sells.
Size of the opportunity: About 61% of renters in America’s biggest cities cannot afford to buy a house, according to Porch Research. Greater housing affordability could produce hundreds of billions of dollars more in real estate transactions.
Financial planning
The challenge: For most people, a house is the biggest financial purchase they will ever make. The median sale price of a home in 2021 was nearly $347,000, according to the National Association of Realtors. That makes a 20% down payment (more than $69,000) a good chunk of the median U.S. household income ($79,900).
There are personal finance apps that help with monthly budgeting, linking bank and credit accounts, buying fractional shares in real estate and other assets, and managing a portfolio of stocks, bonds and cryptocurrencies all in one place.
But there is little designed to help people build the necessary savings and credit history over multiple years toward the goal of purchasing a home. Finance Vault is one company working on this, but they have not yet launched.
Size of the opportunity: Personal finance software companies are expected to see sales of $552 million in sales this year, and credit bureau and credit rating agencies are expected to bring in $13.4 billion, according to IbisWorld. Sites helping consumers plan for a home purchase would likely intersect with both of these industries.
Reducing real estate transaction costs
The challenge: It might be reasonable to assume that in a tight housing market, like the one we are in currently, there would be downward pressure on real estate agent commissions. Indeed, commissions have fallen nearly 50 basis points over the past decade as home prices have increased, per Realtrends.
But a greater percentage of homebuyers used an agent in 2020 versus a decade ago, and total agent commissions were projected to reach record levels last year. There are still too few tools for managing a home sale process without an agent, comparing agent credentials and history to select the right one for you and negotiating performance-based pay instead of a fixed percentage.
Size of the opportunity: Last year, real estate agent commissions were projected to reach $100 billion for the first time.
Optimizing home sales through multiple listing services
The challenge: If no one can find your house online, is it really even for sale? Typically owned by broker and realtor associations, a multiple listing service (MLS) is how homes become visible in local and regional real estate marketplaces.
The seller’s agent, also called the listing agent, is defined in part by the work they do recording this information and can effectively charge thousands of dollars for creating and updating the listing by making it an unspecified fee within the larger transaction commission.
A single posting can require 350 manual data entry points, and a real estate brokerage may have more than one person whose job it is to input these fields. Those costs get passed on to homebuyers. We need more automation and connectivity across MLSs and between MLSs and other systems.
Size of the opportunity: A homeowner that wishes to sell their home without an agent can buy access to an MLS for as little as $99, but most consumers pay much more than this when working with an agent.
If every home seller in 2021 had paid just $99, that would have resulted in $683 million in MLS fees.
Buying new homes before selling
The challenge: In a hot market — or if your personal circumstances dictate as much — you may want to buy a new home before you sell your old one. We need more financing arrangements that will facilitate buy-before-you-sell transactions. Flyhomes is one company filling this gap in six states.
Size of the opportunity: Americans took out $1.61 trillion in home loans in 2021, according to estimates by the Mortgage Bankers Association.
The inefficiencies of home appraisals
The challenge: The standard real estate appraisal can take two to four weeks to complete from the time it is requested by a lender and can cost up to $450. Zillow tried to use artificial intelligence to price homes quickly, but the inaccuracy of its model contributed to the failure of Zillow Offers. But tech-assisted appraisals led by experienced professionals are an inevitable step in the direction of full automation.
Size of the opportunity: Real estate appraisal in the U.S. is a $9.4 billion market, according to IbisWorld.
Finding the right home contractor at the right price
The challenge: It can be hard to know which contractor to trust with a home renovation project. Curbio manages the entire process of pre-sale renovations for homes about to go on the market. Many other companies trying to bring efficiencies to home renovation are getting started by specializing in kitchen or bathroom projects only.
Size of the opportunity: Americans spent $538 billion on home improvement in 2021, per Statista.
Keeping track of home appliances and home repair
The challenge: Every home would be more valuable, and more attractive, if information about appliances, warranties, repair work, materials used for those jobs, and vendors could be stored digitally in one place, automatically updated and transferred to the new owner.
Size of the opportunity: Americans spent $53 billion on household appliances in 2021, per Grand View Research.
The benefits of solving these and other home-buying problems are far reaching. They will lead to cost savings for buyers and sellers, and increased transaction speed enhances much needed inventory volume and can contribute, along with improvements in construction, to an increase in overall housing supply. There are time savings for everyone involved in the transaction and increased productivity for real estate agents, brokerages, lenders, title companies, home contractors and more.
Housing accounts for an estimated 15% to 18% of the economy. Improvements like those outlined above can bolster the efficiency, productivity and reliability of financial markets — including the performance of retirement assets held in pension funds — to the extent that they depend on the performance of the housing market. Crucially, as we make homeownership less daunting, we make it more accessible.
What you want as an entrepreneur is funders nodding in agreement with your pitch before you even have a chance to finish it. These are problems that everyone can understand. More entrepreneurs should call proptech home.
Disclaimer: Flyhomes and Curbio are Camber Creek portfolio companies.
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