He That Hath, Gets.

Pointing out an obvious truth about proptech and real estate

Just saw a tweet from a friend of mine who is the CEO of a proptech company focused on the residential real estate space. He wrote (paraphrasing) that brokerages and agents are getting really squeezed by this housing market, so proptech should step on the gas and really deliver more value.

It’s a great sentiment, but I did want to point out something I’ve been pointing out since my very first post on Notorious ROB (back in 2008 when it was a free wordpress blog):

Technology doesn’t make you better; it makes you more efficient.

There is a very important corollary to this maxim for real estate:

Technology concentrates power and market share. He that hath, gets.

I think that real estate brokers, agents, MLSs, Associations, and even proptech companies themselves often miss this all-important connection. The Biblical wisdom is so very true, especially in real estate. Let me explain.

Zero-Sum Market

Far too many people in real estate tech seem to think that we work in some kind of a manufacturing industry, or a services industry that can generate demand based on price and/or marketing.

For example, if technology made legal services much cheaper, then more people might use tech-enabled lawyers for smaller and smaller issues. Tech-enabled dog walkers might grow the market by offering better, faster, cheaper.

Real estate brokerage however is entirely a zero-sum market, because the size of the market is almost entirely dependent on macroeconomic factors that we do not control. If rates go up, then demand falls; if rates fall, demand rises. Dollar devaluation raises the price of houses, unemployment tends to drop them as fewer people can afford to buy.

The total number of sales transactions in residential real estate and the total sales volume (aka, total addressable market), therefore, is entirely outside the control of brokers and agents.

The only thing that brokers and agents control is how much of that pie they can get. If last year, an agent did 10 transactions, then perhaps with technology, she can do 15 this year.

Thing is, those extra 5 transactions this yea has to come from the same pool of transactions that everybody else is competing over. Which means for our heroine to do an additional 5 transactions, someone else has to do 5 fewer transactions (or 5 someone elses have to do 1 fewer transaction each, etc.).