5 Ways the Real Estate Industry Will Completely Transform Over the Next Decade

by | BiggerPockets.com

How safe are real estate agents’ jobs? Think it’s likely they’ll be replaced by artificial intelligence in the near future?

A recent Oxford study on artificial intelligence forecasts a 97-99% likelihood that real estate agents’ jobs will be made obsolete by AI. And not in 30 years, either. Think the next decade.

As the global economy and job markets continue to evolve, we all have a choice. We can all cry and wail that the sky is falling, or we can become more flexible and continue to develop the skills we’ll need in tomorrow’s economy. No one’s crying that automobiles made blacksmiths obsolete — new career opportunities opened for mechanics, and travel became easier for everyone.

As the Internet and mobile and social technology have evolved alongside the sharing economy, old industries have seen massive disruption. Look no further than what Airbnb did to the hospitality industry. Or Uber’s impact on the taxi industry, what Apple did to the mobile phone industry with the first iPhone in 2007, or how Tesla’s sales model is disrupting the car dealership industry. And those are just the headline-grabbing, glaringly obvious examples.

But what about the real estate industry? It seems to still be plodding along in its old, comfortable 20th century model. Or is it?

Change is not only coming; it’s already starting to disrupt the industry. Here are five ways that the real estate industry is on the verge of disruption and the changes you should look out for over the next few years.

Rent Auctions

How are rents set? A landlord or property manager guesses what the market rent is and advertises it. But a given rental unit may be worth $900 to one person and $1,100 to another who would happily pay more to live two blocks from their work.

A South African startup launched a rental listing and management service that gives landlords the option to let prospective tenants bid on the rent. The landlord sets a reserve rent, and renters are all pre-screened when they sign up for the service.

Less desirable rental units will receive fewer and lower bids; high-demand rental units will generate more higher bids. The resulting rent will be the true market rent, rather than a landlord’s hunch or best guess.

It also ensures that the renter who moves in is the one most enthusiastic about living there.

Pretty nifty idea, eh?

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Flat-Fee Online Real Estate Brokerages

Consider these questions: Does everyone need a real estate agent? Are the services that agents provide worth $10,000? How long are sellers going to continue spending that kind of money to list and sell a property?

Not much longer.

Services like Owners.com in the United States and Your Online Property Agent in the U.K. have started offering flat-fee services in the $400-1,000 range depending on how much extra attention and services you want. All services include an MLS listing, buyer funds verification and background check, property showings calendar and offer negotiation support. Premium services include local agent support, professionally written descriptions, sales contracts, and similar bells and whistles.

So what do sellers give up by using these services? The biggest difference is they would have to show the property themselves. But who can sell the house better than the people who live there?

Expect to see these online brokerages increasingly put the pressure on real estate agents.

More Long-Distance Real Estate Purchases with Virtual Reality

Buying real estate sight-unseen is too uncomfortable for most buyers to consider. But with high-resolution, interactive 3-D virtual reality, buyers will feel like they’re walking through the property in person.

And not just the way the house looked when it was mapped. Increasingly, virtual reality tours will allow viewers to see the natural light at different times of day and even different times of the year!

Buyers won’t even have to use their imagination to determine how their furniture will look in it. Virtual reality software will let them superimpose various pieces of furniture in the space.

Prospective buyers will be able to virtually walk through dozens of homes in an afternoon from the comfort of their real estate agent’s office — or more likely, from their own home, with these virtual tours available through their online broker.

But virtual reality has the capacity to truly globalize real estate markets, making it far easier to confidently buy property anywhere in the world.

Rent Deducted from the Tenants’ Paycheck

High-risk rental applicants are simply turned away in today’s market, when the landlord has any other options available. That makes it pretty tough to find a quality home if your credit is tarnished.

But what if those applicants could virtually guarantee the rent to prospective landlords? SparkRental.com is developing a system to deduct tenants’ rent directly from their paycheck to alleviate the responsibility from renters.

It’s a win-win for both landlords and tenants. Landlords know they’ll get their rent on time every month and never have to hear the words “check’s in the mail” again. Tenants can be accepted for higher quality housing.

To sweeten the deal even more for renters, their on-time rent payments are reported to credit bureaus to help them rebuild their credit.

financing-tips

The Rise of Blockchain Technology in Real Estate Transactions

Most people who have heard of blockchain technology just think of bitcoin. But it’s not bitcoins that will disrupt transactions and the title industry, but rather the technology that enabled bitcoin in the first place.

If you’re not familiar with blockchain, the idea is that it can securely and transparently track transaction histories. For public records like real estate transactions, it’s the perfect solution.

Even lease histories could be logged, with more privacy, to keep clear records for landlords and tenants.

The primary purpose of title companies is to check title histories and record transactions. But what if both processes become completely automated by secure blockchain technology? There may always be a human element, but blockchain is coming one way or another to title companies.

Consider a recent study by Brickvest, in which 56% of real estate investors expect blockchain technology to become the dominant method for recording and tracking real estate transactions, including payments and title history.

Disruptions are on the horizon for title companies, real estate agents, property management, and everyone else in the real estate industry. Technology will change the industry, in ways that help consumers but not necessarily those who make their living from real estate. Be prepared to adapt because your job today may not be available in 10 years from now, and your job in 10 years from now may not exist yet today. Blacksmiths were out of work by 1920, but there were suddenly plenty of jobs for auto mechanics — make sure you’re on the right side of evolution!

What disruptions do you see on the horizon for the real estate industry? How do you think the industry will change, and who will be the winners and losers?

Let’s discuss in the comments section below!

About Author

Brian Davis

Brian is a rental investor and landlord with 15 income properties, who provides free training videos about passive income at SnapLandlord.com. He's also the co-founder of SparkRental.com, which provides free services & education for landlords. His rental management is almost completely automated by now, allowing him to travel the world frequently (if not always in style).

49 Comments

  1. Penny Clark

    Nice article Brian! I like the idea of landlords being able to deduct rent from a tenant’s paycheck. This would work well for tenants who have trouble budgeting their money and allow them access to A and B class properties. I actually know of a real estate investor in Sacto who at his showings selects the highest bidding tenant. Who knows if he bothers screening them for credit, rental history or verifies income.

      • David Willett

        Nice article Brian. Too piggy back off of Penny’s comment I guess the follow on questions would be if there is a program built in to allow the property manager / landlord to know if the tenant somehow lost the job and that rental payment is being stopped, allowing plans to be made for alternate payment.

        • Brian Davis

          Thanks David, so we’ll know as soon as a paycheck is missed. But that is the risk, of course – that the tenant loses their job and doesn’t find a new one. But that’s always going to be a risk no matter what.

        • Christopher Leon on

          Adding two cents to @Brian Davis answer to @david willet question about the tenant possibly losing their job. Brian: Although it is a risk every landlord takes, a tenant with a better credit history is likely to continue to pay rent, or be able to come up with a way to pay rent in order to protect the credit they have built up. The answer you gave albeit sort of true, that was not a fascinating answer, considering you write fascinating articles for that company. I’m not intending to knock you, or the business, but I would think if that company is trying to offer that sort of service, they should offer a service on the back end like when/if they lose a job, how can spark rental protect their client (the landlord)? All I can say is in my experience, our average tenant makes 40-60k a year, and has credit scores ranging from 640-780. I’ve had tenant lose jobs – they just call me and say they lost it (uncommon) and we work with them because they don’t want their credit damaged. But since they are pretty responsible, they also communicate these facts which is highly appreciated. I would imagine if we had poor credit tenants that they wouldn’t be as quick to communicate because what’s the incentive for them? I’m sure there are some tenants with less than decent credit who lose their job and bounce back, but those people I am sure they are not the applicants for spark rental program unless landlord doesn’t know what they’re doing.
          My opinion aside, nice article and I appreciated the perspective you left. The title was “fascinating.” ??

  2. Adam Fout

    I love this article, especially the part about fair market rent being set by an auction, what an innovative idea! I agree that we will see most if not all of the ideas in this article become much more common in the coming decade and I am very excited about that!

  3. Darren Sager

    Agent’s eliminated? Most likely no. This is a people business. It’s built upon relationships. They said the same thing when the auction sites came up. Agents still rule. Will do so I think for the next 30 years at least. Would love a website to figure out the things I do for my clients being a real estate investor myself. Won’t happen.

    • Andre C.

      This is a fantastic article – I’m sorry Darren, but I object. I wholly understand the idea that this is a people business. But, I do think a younger millennial generation purchasing homes over the next decade are different than ourselves. They crave the immediacy of seeing things (VR viewing) and acquiring things immediately – either in the buy side or sell side. Coupled with savings of closing costs, it seems long overdue. I see elements of Real Estate process so antiquated it makes me antsy that many of us are blind to what would be disruptive to the industry. Does anyone call their broker anymore to trade stocks or talk to their travel agent to plan a vacation?

    • Colley Bailey

      I’m not sure that people can be completely replaced in Real Estate. However, there’s plenty of room to streamline, automate, and even eliminate parts of the brokerage process. The rise of 100% commission brokerages is proving that. My brokerage fees are so small, I could still compete with flat fee brokers if I wanted to (and be profitable). That kind of flexibility will be important in the future.

      I definitely see the American two-agent closing system going the way of the dinosaur. I’m betting we’ll take on a more Australian or UK model where the company representing the Owner sells directly to buyers without the use of Buyer’s Agents. Right now, American home sellers are paying a buyer’s agent to negotiate against them. Once homeowners realize this and decide they don’t want to pay it, 2.5-3% of the total commission could vanish overnight. American commissions of 5-6% are the highest in the world, and there’s lots of room for that to change.

    • David Greene

      You’re right Darren. I would elaborate even further. Not only is it a people business, but as an agent, you know exactly how hard you work to keep deals together than your clients likely will never, ever know.

      Agents will be needed because we bring a skill set people need to close a transaction as complicated as a real estate transaction.

      Every time this argument gets presented all they talk about is the bidding on a house and how you don’t need an agent to do that. Well, I agree. That is pretty much the most useless function we perform as agents. You can have a program to do that. It’s what comes after that the average home buyer is never going to want to do, or understand how to.

      Normal people, ESPECIALLY millenials, are never going to to learn how to do things like search for comparable properties to even know what to bid, understand how appraisers work, feel out if a property is even worth the time and energy of bidding on, or learn all the intricacies that go into an offer. There is a lot more than just the sales price.

      Normal consumers are not going to understand how to correctly use their inspection contingency to get the most out of it, how to negotiate repairs, how to follow up with lenders when things go wrong. They won’t know how title companies work. Or what forms to use to extend escrows when things go wrong. They won’t know how to fill out the various forms involved or understand allllll the fair housing laws agents have to operate under.

      It’s very naive to think buying a house is like buying a car. People have been trying to replace agents for a very long time. It’s more like trying to replace a lawyer in a lawsuit than it is like trying to replace a blacksmith with an auto mechanic.

      • Cindy Larsen

        David Greene,

        All of the functions you listed are things a real estate agent does for a buyer. What I fail to see is what my agent does for me as a seller that is worth what I am paying. I am about to sell a property worth around $750K. At 5%, half of which goes to my sellers agent, this is roughly $19k.

        In my experience, other than listing the property on the MLS, realtor.com, redfin, truila, etc, theynonly value they provide is
        1) staging the property. my last agent wanted to charge extra for this anyway, and, I have the experience to do this myself. If I didn’t I bet I could hire someone to do it for < $1K
        2) holding open houses. I can do this better than the agent. i know more about the house, and I have nothing to hide, and can answer any questions. ALso I am not sure that the open house makes sense for a rural property, such as the one I am selling. By appointment is probably better.
        3) writing contracts and negotiating. I can hire a real estate lawyer who is also a broker to do the contracts for a flat fee of $5K. I am a great negotiator, and I believe in win-win. And with docusign, it is easy to get the docs to the seller, the title company, etc.
        4) marketing the house other than on the internet. Nope, don't need it.
        5) writing the MLS marketing blurb, getting a great photographer, etc. Yeah, I can do that too.
        6) Pricing the property. An appriaser is cheap compared to a real estate agent, and it is better info than the real estate agent's "free market analysis". Plus, comps are pretty easy to determine using realtor.com, redfin, etc.

        So, for less than half the price, and without cutting any corners, FSBO is for me.
        Unless I'm missing something?

    • Brian Davis

      Very painful, and I would argue unnecessary for standard/normal homes. Super high-end homes and unique homes are a different story, but your run-of-the-mill two story colonial with three bedrooms and two baths? There’s a mismatch between the services received and the cost.

      • David Greene

        I wish more people know how many services occur, or how many times agents do a ton of work and never get paid.

        If we had sellers and buyers communicating with each other with agents acting as buffers, you would see things get really ugly really fast.

        I would love to share with you guys some of the stuff agents have to do that sellers never see.

  4. Javier Villarreal

    Great article! Technological evolutions will definitely play a big role on how we live and work in the near future. Something hard to comprehend is that changes caused by technology will grow at an exponential rate rather than linear. That will create opportunities for those that can adapt fast or cause uncertainty for those who don’t. Here is another very interesting article on how the future could transform and/or demonetize key industries:

    https://singularityhub.com/2016/07/18/why-the-cost-of-living-is-poised-to-plummet-in-the-next-20-years/

    • Brian Davis

      Would love to hear how it turns out for your James, please feel free to message me at any time. In fact, I may put together a couple case studies on real estate investors’ experiences with Owners.com, I’d love to talk to investors who use it regularly.

  5. Patsy Waldron

    Loved, loved, LOVED this article! And completely see the potential for these things to happen in the very near future and upend the real estate industry as we know it. And I, for one, will not cry over it!

    Funny thing- just this afternoon I was thinking of the rent auction thing! I have a house that will be ready to rent in a couple of weeks, and was checking rents in the area to know what we should advertise – and thought “Wow, wouldn’t it be neat if potential tenants could bid however much they were willing to pay, rather than me setting a rate that may be either too high or too low for the current tenant pool?”

  6. Erik Hansen

    Great article Brian. Reminds me of a maxim from my old employer – ‘evolve immediately.’
    We can embrace change and adapt/adopt new methods that are born with the latest technology, or be stubborm and stuck in our old ways, eventually getting left behind.

    • Brian Davis

      Hi Courtney, I’m actually in the process of putting together that service at SparkRental, for rent deductions from tenants’ payroll. It’s been quite challenging, but we’re getting there, and hope to launch in the next 1-2 months. We’re super excited about it!

  7. Casey Murray

    I love articles that challenge the status quo. Zillow’s top executive recently said Zillow is not replacing RE agents (which Expedia did replace travel agents); Zillow is just charging RE agents more for advertising. The rationale was that Expedia dealt with consumers paying a couple hundred dollars for flights/hotels while the purchase/sell of a personal residence is the biggest investment for most people. People are going to deal with a professional (i.e. RE agent) for advice and guidance on buying/selling their personal/investment property. That being said, I don’t see the RE agent being wiped out.

    • Brian Davis

      That’s an interesting analogy Casey. I think there’s a case to be made that travel agents weren’t wiped out, but the average traveler stopped using them, which led to the travel agent industry niching down (and shrinking). Wealthy travelers still use them, as do travelers with more unique itinerary needs. I actually think we’ll see something similar with real estate agents – they won’t disappear, but I think over the next decade we’ll see increasing number of average home sellers using less expensive means of selling their homes. But there will always be a role for agents selling high end homes, and unique homes.
      Anyway it will be interesting to watch it unfold!

  8. Tom Kotis

    Serious question. Does anyone think that Donald Trump’s presidency will have an impact on these “global” trends that do not have the best interest of the American worker, as current markets are defined by, in mind? Keep opinions about the man himself aside please. Is it wrong to want, or place, limits on how far we go with technology? Or are we all given a simple choice to adapt or be rendered obsolete by the machines we built?

  9. Jimmy Davis

    Everyone always talks about technology replacing real estate agents, but no one ever talks about the loan originators, or the insurance agents…Now there’s two industries that I believe will be gone within 10 years. Or any job that can be done solely and entirely from a desk and a computer for that matter. Agents do way too much & know what to look for in anticipating the many problems that can derail a real estate transaction.
    However I do see agent’s commissions going down in the future, but only because of supply and demand. Everyone out there knows 20+ different agents to work with that are hungry and will work for almost nothing…but those are the agents that are usually here today and gone tomorrow.

  10. Jim Costa

    I always wondered why their wasn’t a way for a landlord to accept bids for a rental just like selling a home. I think once someone finds a stable platform for this to work, it will be coming. I don’t think re agents will be eliminated but the way they get compensated and the way houses get marketed will drastically change. Digital marketing is the way of the future. We have seen huge growth with online websites and digital walkthroughs; 3d rendering and VR technology is right around the corner. In low priced housing markets under 100k with 5-6% commission split you will not see much change (cost of doing business). I agree with @cindy Larsen paying 19K to sell a home (just sellers agent) seems excessive, but look at your own examples. You will not find someone to stage a $750K home for $1K (unless you have a 500 sqft loft). This is above the cost of an agent so won’t discuss for now. If you decide to not hire an agent and alacart everything: $5K for lawyer. Take professional pictures might cost you $500-$100. Marketing online or create flyers for your open house. If you have design skills great if not pay another $1K. Open house you can handle but you will have to handle the 50-100 phone calls to make the 20 appointments to have the 5-10 to show up. You can save money but at what cost. You still need to get on the mls so other agents will show your property so you have to at least pay a flat fee service for $500-$1000. I agree with the negotiations. Most realtors have no idea how to negotiate. You also can do your own comps but to be safe you hire an appraiser for $2-3K . So you spend $9-11K instead of $18K. A nice savings? Once you do all this and actually get an offer you still have to deal with the buyer. Deal with all the inspections coordinate all the times. Keep in contact with the buyers loan officers stay up to date with the title company. This takes a lot of time and after all the time you put in, day after day for 45 days the buyer decides to back out or doesn’t qualify! Now you get to do it all again. After 2-3 months you may finally close. If you have a bread and butter home built in the last 20 years you could be fine. If you have an older home with lead paint or asbestos siding or any other funky thing, that extra layer of protection seems worth the extra fees. I just helped a family member sell a house and realized how much time went into selling, much more than I originally expected. For a lot of people it is not worth it so I understand.

    I may seem to contradict myself but I feel $36K is too much to pay. You may have someone who has been making payments on the house for 10 years and finally has $100K of equity and now he has to pay $36K in commissions, a third of his profit. Not going to happen. To get back to the purpose of this article. I think you will see a growth in 3rd party marketing services. You will see the staging feature continue to grow. With that said, I have started to see homes that have digital photograpghs that have been virtually furnished. The technology is growing and will begin seeing more because of price. Kind of a let down when you go to physically see the house and can’t invision furnishings. You will see the photo category grow, companies that offer 3d walkthroughs and virtual tours. These services will start being offered to home owners who wish to fsbo. As the millennial’s continue to age and begin making the transition from renter to owner the demand will drive the market place. The technology driven diy’er will seek information from sources other than the mls or agent creating a huge growth for Zillow, Trulia, Hot Pads, Craigslist or 3rd party software yet in the market. Once they realize they can find contracts online and have a title company handle everything you will see a huge shift away from agents. I never understood why a seller pays a buyers agent. I understand the concept of paying to find a buyer but that, by definition is what a listing agents job is. The contract is not to list the house but to find a buyer. As a seller I have to pay an agent(The buyer’s) who’s sole purpose and legal obligation is to represent the buyer. Paying someone to not represent me and negotiate the cheapest price for someone else’s benefit… Who came up with this winning process. I know laws have changed and representation has changed over the years. This system is ripe for an overhaul. Just a matter of time before the buyer will be responsible for paying for there own representation. Makes the entire contract much cleaner and will create greater loyalty. Surprised agents haven’t pushed for this and sellers haven’t demanded.

  11. Mike P.

    IDK, I think the author became so open minded while righting this that his brain fell out. I can’t see real estate agents going anywhere in the next 30 years, and what retail buyer is going to buy a home using VR? Have you ever worked with a snowflake generation buyer, they require much hand holding.

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