5 trends impacting the future of real estate

The need to change is not new. As Charles Darwin once said: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.” Never has this been more relevant to the real estate industry than right now. Chris Rolls explains.

	1   TREND 1 – Sophisticated data science is on its way How good would it be if you could simply scroll through your database of 2000 contacts and easily identify the 100 people you know are going to sell over the next six to eight months? What if you could predict how many people will bid at your next auction? Better still, know what price the property will sell for prior to even listing it? Sounds like the stuff dreams are made of! But these situations are fast becoming a reality thanks to ‘predictive analytics’. Predictive analytics uses a range of techniques – including data mining, statistics, machine learning and artificial intelligence – to make accurate predictions about future events based on large amounts of data. Real estate agencies have millions of their own data points and many more are available publicly. Agents who use this data to their advantage will be able to outperform those that don’t. It’s already happening in the US market on a wide scale – and it’s on its way to Australia.

	2   TREND 2 – Commissions will continue to spiral down According to Macquarie Bank’s latest Residential Real Estate Benchmarking Report, sales and property management commissions are on the decline. This is due, in large part, to new technologies allowing agencies to operate more efficiently – and as they become more efficient, they reduce their price to win more business. In addition, technology-enabled business models like Purplebricks (and others that will soon be in Australia) will drive commission rates down further across the industry. To combat this, agencies will need to introduce new technology to drive efficiencies and start generating revenue from places other than traditional commissions.

	3   TREND 3 – Labour to continue to move offshore More administrative and property management tasks will be outsourced to countries like the Philippines in 2018 than in the previous three years combined. As technology improves, remote workers become more efficient – further increasing the financial return to business owners. And with the cost of hiring a university educated, English speaking team member in the Philippines coming in at less than a quarter of their Australian equivalent, you don’t have to be a business genius to realise it makes a lot of sense. High staff turnover rates in property management, as well as ever improving cloud-based property management software, will further encourage the offshoring of jobs in the property management sector.

	4   TREND 4 – Unforeseen new entrants will challenge traditional agency models There’s a property management company in the US that, with some advanced software and a team of 30 people, manages more than 200,000 properties! That’s seven times larger than the biggest property management company in Australia. Amazon has invited real estate agents to sell their services on their website. Facebook has announced that they’re moving into the real estate advertising market. And Opendoor, worth a staggering USD $1 billion, facilitated the sale of 400 properties in just one month last year in the US. Not one of those sales required a traditional real estate agent – and no commission changed hands! In 2018, the traditional model of agency practice is going to come under even more pressure from innovative new business models. A key trend will be for existing agencies to collaborate to reduce costs and improve efficiencies, and small businesses will be consolidated into larger organisations who have better economies of scale.

	5   TREND 5 – The machines are coming Automation will be the buzzword for real estate agents in 2018, as artificial intelligence, machine learning and sophisticated algorithms will automate key parts of a real estate professional’s job. It’s already happening in the US, where the artificially intelligent lawyer ‘Ross’ has already been hired by multiple law firms to provide legal advice on contracts. And similar technology has already arrived in the Australian real estate industry. ‘Rita’, the first artificially intelligent digital assistant designed specifically for the Australian real estate industry has been launched by Aire (see getaire.com.au) and sophisticated, automated, intelligent, personalised email marketing is also here and achieving great results in real estate offices (see activepipe.com). How far can automation in the real estate industry go? Well, there are already places in the US where you can visit an open home 24 hours a day, seven days a week, gaining access with an app that unlocks a smart lock and then triggers all the lights to turn on and cameras to record your every move.

CHRIS ROLLS is the Managing Director at PieLAB Venture Partners, who manage Australia’s first real estate specific venture capital fund.