Technology is evolving at a breakneck rate, with new disruptive innovations rattling the business world with unprecedented regularity. It has transformed the way people eat, work, socialize, get around town, and even how to manage their personal health.
It should come as no surprise, then, that technology has also changed how we view financial decisions. In particular, it has shifted the paradigm surrounding the largest financial decision most people make: real estate.
The real estate industry was ripe for disruption from innovative thinkers and mavericks. Traditionally a buttoned-down, opaque, and stalwartly brick-and-mortar industry, real estate was falling behind the times – well before the advent of currently emerging technologies. As fintech’s star rises in the business world, you can track, in real-time, its growing influence on real estate practices and expectations.
This article charts fintech’s growing role in real estate by exploring six key ideas recently trending in the industry.
Here are the many ways fintech is poised to dominate the real estate industry.
What Is Fintech?
Before delving any further, let’s start with a working definition of fintech – for readers unfamiliar with the term. Fintech is a portmanteau of “financial technology,” and refers to the broad suite of technological companies, platforms, and software providing alternative services to the major financial institutions.
Occasionally in this article, you will also find the term “proptech” used. Proptech, short for property technology, is an off-shoot (or relative, depending on who you ask) of fintech that deals specifically in processes relating to real estate.
Now, let’s explore the fintech and proptech ideas making waves with real estate consumers, practitioners and investors.
1. Searching and Vetting Practitioners: Real Estate Digital Marketplaces
The first step for most consumers in their real estate journey is finding a real estate agent. Prior to the fintech boom, this was a perplexing process that mostly worked in the agents’ favor. Because commission fees were opaque/unlisted, and agent sales histories were hard to come by, consumers had to settle for word-of-mouth recommendations and predatory marketing tactics on behalf of practitioners.
Fintech companies like Nobul, a real estate digital marketplace, saw this opacity as an opportunity for disruption. The platform allows consumers to find and vet real estate agents based on personal criteria, which the company funnels through a proprietary algorithm. The marketplace then recommends relevant agents who can compete for the consumer’s business (often through lower commission fees).
According to the company CEO and founder, Regan McGee, Nobul was “born of the perfect storm,” introducing “transparency, accountability, and simplicity at a crucial time, as recent regulatory changes, long-standing demand for industry advancement, and an embrace of digital technologies have become too prevalent to ignore.”
2. A Lay of the Land: Accurate Home Valuations
An alternative first step for a residential seller might be a property valuation. A decade ago, assessments and appraisals were big business; if a seller wanted to gauge their asset’s standing, they had to part with a not-insignificant sum of money (between $300-400 was common).
Fintech and proptech companies saw this as a (mostly) unnecessary third-party cash-grab, democratizing home assessments by offering free, fast valuations. The valuations offered aren’t as authoritative as conventional assessments; rather, they are meant for sellers considering making a move. Some proptech companies, like Zillow or Nobul, offer valuation tools as a free auxiliary resource for buyers/sellers.
3. Real Estate Financing: Proptech Lending
No one should give you the impression that fintech and proptech work entirely independently from major financial institutions. Increasingly, the two rely on one another. Sometimes, financial service incumbents incorporate fintech ideas in their legacy systems. But more often, fintech companies and finance incumbents will cooperate and partner to offer consumers a stronger service.
Case in point: proptech lending, a tech-enabled approach to real estate financing spearheaded by fintech companies but backed by large financial institutions. Companies like Better, for instance, have recently seen success working with big banks to offer a streamlined mortgage approval process.
4. An Updated Rent-to-Own Model in Fintech
The rent-to-own model has been around for decades and remains very popular with first-time buyers across the pond in the UK (where there’s a government-backed “rent-to-buy scheme”). Traditionally, it appeals to prospective buyers aiming to land their first home without the necessary criteria for mortgage approval. Rent-to-own models exact a non-refundable upfront cost, followed by a monthly “rent” that goes toward a down payment. A person can find their dream home, move in, and then take time to work up to mortgage approval and ownership.
The model was basically tailor-made for fintech involvement, a sector known for its creative approaches to streamlining transactions. Sure enough, recent fintech/proptech companies like Divvy are updating the rent-to-own model with an end-to-end tech platform that makes the process turnkey and simple.
5. Democratizing REITs: Commercial Real Estate Investment
Real estate investment trusts (REITs) used to be a fairly exclusive service, primarily available to the ultra-wealthy. But some fintech companies are helping democratize the concept, allowing investors of all wealth levels to invest in CRE through equity REITs.
Perhaps the most well-known company working in this space is Streetwise, although several other investment fintech companies offering REITs have emerged recently. Like the section below, these services are an excellent example of how financial tech can facilitate accessible investment opportunities.
6. Fractional Ownership: Blockchain Fintech
Blockchain technology has been particularly fruitful for fintech, enabling innovators to offer securer, faster, and more transparent transactions. And blockchain’s impact on real estate is similarly significant.
Specifically, the immutable, public ledger enables “fractional ownership,” a concept not dissimilar to REITs. Essentially, fractional ownership allows investors to buy and trade small fractions of real estate via blockchain, effectively treating real estate investment like any other stock. It’s a simple, low-risk, and relatively inexpensive way for people of various income/net worth levels to take advantage of real estate investment. It’s becoming an increasingly popular service with companies like AcreTrader, BuyProperly, and Addy.
From finding the right real estate agent to buying, selling, and investing in properties, fintech companies have touched nearly every aspect of the real estate process. As technology’s role in real estate continues to grow, expect these ideas to continue rising in popularity.