Two tech-enabled real estate businesses made big announcements this month. Squarefoot, the New York-based office leasing play, successfully raised a $7 Million Series A round to expand their footprint, looking to find their next city after building up the product in New York. Their competitor in tech-enabled office leasing, Truss, announced an expansion into retail leasing (from Office-only).

It’s an interesting time for the real estate tech (proptech) industry. The three classic brokerage services that employ the most brokers are Leasing, Sales, and Mortgage services. Copy those three across both Residential and Commercial and you essentially have the six major buckets of real estate brokerage jobs.

Now there are “tech-enabled” startups in the US attacking each one, each in their own unique way, but with some common threads for what has become the tech-enabled model to real estate services. Each company is aiming to intermediate the market with some mix of proprietary technology tools and human service.

Why tech-enabled? There are three categories of benefits technology brings to augment a brokerage businesses:

Add capabilities that were not possible before, either for the client directly, or for the company itself. Eliminate inefficiencies and redundant tasks to let humans focus their work on serving clients. Better fit with modern lifestyle and trends.

Residential

Residential real estate is a B2C industry, helping consumers rent apartments, buy homes, and finance them with mortgages. As comes with the territory with consumer businesses, it’s extremely important to build a strong brand, and, for tech companies, there’s a real opportunity to scale to millions of customers. Still, the lion’s share of residential real estate today is brokered by local offices of agents, whether they are independent or franchised. Redfin and Compass are aiming to change that.

Residential Leasing

Compass is rapidly gaining market share in apartment rental brokerage in many key markets across the country. They also might be the company I list here with the least consumer-facing tech. Compass’ proprietary technology is largely internal-facing, mostly mobile and advertising tools for their own agents to be more productive in the field, and show listings to their customers. For that reason, the entire Compass experience still revolves largely around the agent relationship.

In this model, Compass has bet that the future of the residential real estate is more one of augmentation of the agent with technology than replacement or redefinition. While they may eliminate some inefficiencies, it seems the consensus value for Compass comes from the fact that the agent (their real customer) resonates really well with the aura of support and cachet that Compass offers them.

Residential Sales

Flipping over into home purchases, here Compass competes with Redfin, who went public in 2017. I think this race is going to be fascinating, as Redfin has a pretty different style. They push as much technology into the consumer’s hands as they can, reserving only the necessities to the broker-controlled back-office. Yes, you still get an experienced human helping you every step of the way, but Redfin’s portal allows a client to search for a home, make offers, submit documentation, and track their closing process all online. Because they’ve focused more on consumer-facing tech and automation, they can do two things Compass cannot currently:

Offer a rebate to a home buyer from the typical broker commission, making their service cheaper. Pay their agents with a salary and bonus structure

This is still not elimination of the agent model, but it is very much a re-definition. The traditional agent owns the client relationship, but here they are more customer support-centric, where the user’s relationship is with the platform.

Residential Mortgage

Crossing into the residential mortgage space, the focus shifts from revolving around the home, to revolving around the borrower. Your financials, accounts, and credit scores are integrated seamlessly into Morty, and so are a host of third party lenders. The underwriting is sped up vastly, and there’s more control and transparency in the process.

They’re not available nationwide yet, but they are launching more markets as we speak. It’s cheaper, faster, and easier than a traditional residential mortgage broker while providing the same benefits. Their real challenge will be one of customer acquisition — how do they reach consumers by the millions, at the right moment when they are ready to shop for a mortgage?

Commercial

Commercial Leasing

Here’s where we mentioned the competing announcements at the top. Truss has been expanding from city to city more quickly, and now announcing their move from only Office into Retail. As with Squarefoot, Truss focuses on tenant tools and representation, meaning businesses looking to lease space to do business. While it’s necessary to work with landlords to acquire space to search and lease for the tenants, the tenant side is the first mover on the platform, so they are the key customer.

I think it’s an interesting challenge to cater a real estate tech play to non-real estate companies (tenants), but also a huge opportunity, because they need a clearer, easier online process for precisely that reason!

Now one more thought-provoker: the same forces that are driving office space toward more of a Service offering and commoditizing the actual space, should also be a benefit to platforms like Truss or Squarefoot to a degree. But are those two trends at odds? Is there less demand for office leases in general over the next several years, which could harm these platforms? I think these platforms could be bolstered by office landlords taking a much more active role in becoming the “space as a service” themselves, enabling their own buildings with the services demanded by smaller tenants that coworking companies would give them, and then allowing for more a more flexible leasing process that jives well with an increasingly online leasing process. I’d be interested to see a big office landlord buy out a B-tier coworking platform to compete with WeWork while also making a stronger play with these tech-enabled leasing startups in some way.

Commercial Sales

In commercial sales, Ten-X is the most established online marketplace, by far. But it’s not a pure marketplace model — it’s tech-enabled business in two senses. First, for every transaction on the platform, there is a Ten-X rep that manages the auction/sale process. Second, for those same transactions, there is always a listing broker from outside the platform that represents the seller, and determines the underwriting and marketing to present. That means there is at least as much human involvement as a traditional sale of commercial real estate, and the tech platform is really there to provide buyer reach, and time efficiency.

If you’ve followed the Ten-X saga over the last few years at all, you’ll know that they were previously just “Auction.com”, which is still a brand under the Ten-X umbrella, but that their rebrand was a big push to travel up toward larger and more sophisticated investors, something they’ve achieved to some extent. However, it’s unclear what the future of Ten-X holds, as they’re now under private equity control and have laid off a couple of rounds of employees to maximize short-term profits. Will that strategy be compatible with a robust vision of innovation? Or is the disrupter now ripe for disruption themselves?

Commercial Mortgage

What pairs nicely with researching and analyzing property commercial acquisitions online? If you said “easily comparing financing options online”, you are correct! It seems obvious, but it’s actually early in the game in this regard.

New platforms like StackSource will automatically connect you to the most relevant lenders across the country based on your financing scenario and help you analyze the ideal loan choice without hopping into Excel, while preserving the human capital markets expertise via expert Capital Advisors. Our experts and our tools add value from submission through funding, and our lender network offers the most competitive financing on the market. Not to mention there’s no fee if you close with a lender in our core network (though we’ll present options across the spectrum).

Future of brokerage

We’d like to hear from you: who is the future of residential real estate, Redfin or Compass? Is the goal to have the least amount of human involvement in a transaction, or the savviest broker augmented by proprietary data and tech? Does the residential side become more or less streamlined than commercial transactions?

Sound off in the responses, or chat with us about it in the Proptech Connect Slack (join here).