Introduction

The US housing market is a 10.1 trillion dollar market (1) and represents 25% of all US household wealth (2). Given it’s size and importance it’s not surprising we’re seeing a lot of startups try to tackle this market. Venture capital funding will be used as a leading indicator of what’s to come the reason I do this is – 1) for the data, because there’s much more information on fundraising and 2) I assume venture capitalists have a good eye towards the future and their investments are a good indicator of a future large company.

The Catalyst

A rebounding housing market, (3) along with strong showing of Zillow, with 219.6% gains since it’s IPO (4) and it’s 3.5 billion acquisition of Trulia (5) all have given the real estate startups validation and spurred on founders.  Zillow, Trulia and Redfin all were founded around the same time (2005, 2005 and 2004) and finally have emerged nearly a decade later as successful 4 billion, 3.5 billion and half a billion dollar companies. So what does the next decade hold?

Commercial Real Estate

What often is seen with technology is that the consumer market will innovate first and then startups will move more upstream to enterprise. I attribute this to the easier cost of acquisition of consumers and larger diversity including people more willing to be first adopters versus enterprise clients who are usually more conservative. So what Zillow and Trulia did for consumer’s who wanted to easily search for real estate, is happening in the commercial real estate market. In area long controlled by brokers, who haven’t really leveraged technology we’re starting to see innovation creep up in two different areas. The first is that commercial real estate search is being disrupted by companies such as 42Floors, a company that is acts just as Zillow did but for commercial real estate (mostly office spaces). 42Floors was funded by YCombinator, NEA and BVP backed company and raised 12.3MM in January 2013 (6) to disrupt this space. Commercial brokers too have found themselves being forced to leverage technology in their work with a mobile app called Hightower that functioned as mobile way to manage their sales process, recently raising 6.5MM.  (7)

Real Estate Investing

With the market jumping back on real estate, personal investors want to get in on investing in real estate. When the “JOBs act legalized crowding funding” back in 2012, we saw that it became easier to invest individually with an obvious area being real estate. Housing projects are easy to understand where their revenues come from – rentals and are asset backed. This area has quickly been funded by venture capital with Fundrise raised 31MM in May of this year (8), Realty Mogul and Real Crowd have also similarly raised million dollar rounds.

Brokers strike back

Brokers have become aware that if they don’t adapt to the use of technology, the large fees they generate will become a thing of the past. Responding to the threats they face, brokers have started using startups such as Realscout, a company that addresses the imbalance of “real estate agents getting the short end of the stick and are being left behind. Generally speaking, agents are still using outdated search and client management tools”(9) RealScout claims to “put realtors back in the driver’s seat — both by making the search process itself more collaborative and by offering them better tools to engage clients and find new business” (10)

Selling Real Estate

Selling real estate has remained complicated despite the increased options in searching for properties. Two separate startups have recently arisen to solve this problem by letting property owners sell directly online: Allre that was announced at TechCrunch Disrupt 2014 (11) and Keth Rabois of Square fame who recently launched OpenDoor (12) both of these new startups have emphsaized being able to sell online directly without any brokers at all. It makes sense that given the simplicity of information and the rise of ecommerce that more and more things can just be sold directly online.

Conclusion

As technology evolves it continues to changes spaces that were once considered un-modernizable. Real estate information was disrupted nearly a decade ago by easier ways to find information now other aspects of this industry are being innovated upon by a whole new range of startups.

References

  1. http://www.census.gov/people/wealth/files/Wealth%20Highlights%202011.pdf
  2. http://www.census.gov/people/wealth/files/Wealth%20Highlights%202011.pdf
  3. http://www.housingviews.com/wp-content/uploads/2014/02/CSHomePrice_Release_Dec2013-results.pdf
  4. http://finance.yahoo.com/q?s=Z
  5. http://dealbook.nytimes.com/2014/07/28/zillow-to-buy-trulia-for-3-5-billion/?_php=true&_type=blogs&_r=0
  6. http://pando.com/2013/01/31/finding-office-space-sucks-42floors-gets-12-3m-to-make-it-less-so/
  7. http://techcrunch.com/2014/08/21/hightower-raises-6-5m-series-a-for-its-commercial-real-estate-platform/
  8. http://dealbook.nytimes.com/2014/05/27/fundrise-raises-31-million-as-interest-in-crowdfunded-real-estate-grows/

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