A Leeds expert says new tools will bring incremental changes, not wide-scale disruption.
Mike DelPrete is a believer in technology’s potential to be a game-changer in real estate. But just as important, he’s acutely aware of its limitations.
DelPrete, a scholar in residence at the Leeds School of Business, is an expert in real estate technology whose perspectives on the industry come from his experience as an entrepreneur and his curiosity about how people buy and sell homes.
“One of the biggest things I’ve learned from studying this intersection over the last six or seven years is just how nonintuitive it is,” DelPrete said, especially if you consider that, for all the upheaval technology has created in that timeframe, the process of buying and selling homes has been remarkably resistant to change.
“We’re humans. We’re optimistic about technology and its ability to create all these cool experiences,” DelPrete said. “But it's not that easy. Over the past five years, real estate tech companies have raised billions of dollars to change the industry, and if you asked me what role technology has played in that, I would say it’s been pretty marginal.”
When it comes to technology and entrepreneurship, DelPrete knows his stuff. He founded Agora Games, which he eventually sold to the esports giant Major League Gaming, and worked to identify investment opportunities at Trade Me as a corporate strategist after moving to New Zealand.
His interest in real estate came to the forefront in 2016, as he was returning to the United States.
“I’d been working in the real estate technology space, at a property portal like Zillow,” he said. “And I read about these new companies raising money, and wanted to dive in and understand that—not just the technology, but how business models might change the way we buy and sell homes.”
And while capital has readily flowed into this space—helping create, among other things, the iBuyer phenomenon—it hasn’t fueled innovations on the same scale as, say, Uber or Duolingo. DelPrete recently presented some of his work in emerging real estate models at the Harvard Joint Center for Housing.
He called it, “How To Lose a Billion Dollars in Real Estate Tech.”
‘Massively unprofitable’ business models
While venture capital investment in residential real estate has neared $50 billion since 2015, “with few exceptions, these new business models remain massively unprofitable,” he said.
One example of a new model is iBuyers, or companies that use technology to instantly make offers on homes. The most cautionary tale in this chapter is of Zillow, which accelerated its homebuying efforts just ahead of the market cooling off in summer 2021, paying top-dollar for homes that quickly went underwater. Zillow was forced to shut down its iBuying arm that fall, but its competitors—especially Opendoor, Offerpad and Redfin—are still in business.
“The fact that Zillow can’t make it work shouldn’t be the final death knell for iBuying,” DelPrete told The Wall Street Journal in November 2021.
What Zillow did get right, DelPrete said, has nothing to do with iBuying. It created a stir when it arrived in the market in 2006, using technology to aggregate and centralize home pricing data that was inaccessible to the average buyer.
“It’s very similar to booking a flight,” DelPrete said. “Back in the day, you could not book a flight directly, you had to call a travel agent. Now, that process has been democratized, and all that information is out there, so you don’t need to go through an agent any more.”
Does that mean the real estate agent is going the way of the travel agent? DelPrete instead sees a landscape where “agents are replaced by agents using technology.”
“Real estate agents will not become travel agents,” he said. “A home purchase is typically the largest transaction someone will undertake in their lifetime. It’s high value and low frequency, and in a case like that, people want someone to hold their hand and talk about flood zones, damage to a foundation, a roof that needs replacing, weather risks, the ins and outs of a local neighborhood. No algorithm is ever going to be able to do that. ”
Industry perspectives in class
These perspectives are something DelPrete brings to a course he teaches, Real Estate Technology, which leans heavily on guest speakers from the industry to talk about how business models are changing in response to new tools.
“These are successful entrepreneurs and CEOs from the companies we talk about when we talk about change, evolution and disruption in the industry,” he said, mentioning Opendoor, Showing Time, Zillow and Remax. “They talk about what they’re seeing, what they’re learning. It’s a window into these emerging issues that is hard to get anywhere else. How is technology changing how we buy houses? How is technology not doing that? What are some examples where these companies have invested so much time and money into building something, but it didn’t work out?”
Interest in tech-driven solutions to evolve residential real estate—a trendy model now, power buying, is essentially iBuying, but for the buyer side—will remain hot, but progress incrementally in the near term, DelPrete said, especially as the tech industry copes with layoffs and real estate companies search for expenses to cut in a trying market.
“The industry is moving very slowly, but it’s never moved this fast,” he said. “These new models have proven traction, but remain a small fraction of the overall market. This is evolution, not revolution, and changing consumer behavior takes time.”
“Emerging Models in Residential Real Estate, or How to Lose a Billion Dollars in Real Estate Tech,” was published by the Joint Center for Housing Studies at Harvard University in January.