Many industries have already been “disrupted” by technology leaving experts to debate whether the real estate industry is next. It’s important, now more than ever, to explore the idea of disruptive technology in real estate and the impact technology has had and will have on the business.
What Is Disruptive Technology?
The definition of disruptive technology can be taken from its name. It’s a kind of technology that takes the place of an established technology and essentially, changes the face of an industry. The previous technology would have had an application in its market that now becomes obsolete in the presence of the new technology. Disruptive technologies can even create new industries, changing the way something is fundamentally done.
To get to the root of this, let’s take a look at a few key terms used when discussing technological disruption:
When an existing and established technology has been improved upon, this change is called a sustaining technology. If we compare the modern PC to ones that were available 10 years ago, we can see the concept of sustaining technology. Being faster, more compact, having more memory- all of these added features improved upon the existing product. And all products within the market for the PC then compete to keep up with this sustaining technology.
Disruptive technology, on the other hand, is something new. Typically with that comes an initially limited market/audience. Sometimes, disruptive technologies even have issues with how they perform and don’t have a widespread and proven practical application. This is a major reason why larger corporations don’t pick up disruptive technology right away or see the potential. That, and the potential costs, allows smaller companies to carry on and work their way up from underserviced markets to larger market shares until the new technology has replaced the old.
If we take a look at the original PC to come into the market, we see an example of technological disruption. The way we work and communicate was fundamentally changed and the old technology (the typewriter) was replaced.
Other examples of disruptive technology include:
- Social networking
- Cell phones
- Digital photography
Disruptive Technology vs Disruptive Innovation
While the term disruptive technology remains in popular use, the author Clayton M. Christensen who actually coined the phrase “disruptive technology” replaced it with the term “disruptive innovation.” The idea behind the change in terminology comes from the fact that Christensen recognized that a technology in itself typically doesn’t disrupt a market. Rather, it’s the business model that follows the new technology that is disruptive.
Let’s look at the example of the automobile. The first automobiles were technological innovations and possibly a disruptive technology. Still, the horse-drawn carriage remained in wide-use and that market was not disrupted at all because these automobiles were too expensive. The actual disruptive innovation came about with the Ford Model T which became widely available and changed the transportation market forever.
Now that we’ve covered the basics, let’s explore the idea of disruptive technology and innovation in real estate.
Disruptive Technologies in Real Estate
The ideas above may seem foreign to many of us in the real estate business. Being an industry based on hospitality and construction, real estate has been slow to integrate technology into its practices. But we’re watching now as these changes are coming about at a pace faster than ever.
It’s most notable when you pay attention to startup companies and the funding they’re receiving from venture capitalists. These startups revolve around proptech- real estate technology. Proptech companies like Opendoor (a startup that flips investment properties) and Compass (a brokerage) have received millions in funding already. These companies and the attention they’re getting are sparking the debate as to whether real estate will experience technological disruption very soon and if the way real estate transactions take place will be changed forever.
There are three major technologies that are making their way into real estate. While some argue if any of them actually deserve the title of “disruptive technologies,” it’s important to review them and their impact on the industry.
Blockchain Technology and Real Estate Transactions
Blockchain technology introduces the use of a distributed ledger into real estate transactions. A distributed ledger is a kind of shared database that is synchronized across a network that spreads over different sites. Real estate transactions within a blockchain have public witnesses as participants have an identical copy and any change made reflects on all copies almost immediately. It can be thought of like an active online real estate market where business takes place, kind of like the stock market.
The benefits that come along with blockchain in real estate are the obvious transparency and security. Real estate investment scams and cyber attacks are less likely with this system.
The element of blockchain that makes it a disruptive technology in real estate is the fact that it eliminates the need for third-party intermediaries. There’s no central authority that holds the record of the transaction. Real estate brokers, real estate agents, lawyers, lenders, and banks will likely not have to be involved with the use of blockchain. Currently, selling or buying investment properties can hardly be done without these key professionals, as any real estate investor knows.
There are a few proptech companies that have already started using blockchain for real estate transactions. However, the application remains for smaller transactions as of date.
Augmented Reality and the Real Estate Property
Augmented reality (AR) is another form of disruptive technology in real estate. AR is a kind of virtual reality (VR) that uses computer-generated (CG) content with the combination of real-world content. A popular example is the app, Pokémon Go.
In real estate, proptech companies have started using AR when it comes to incomplete investment property. Real estate developers and brokers, for instance, can use AR technology to overlay content to see what an unfinished property would look like. This allows them to evaluate, compare and configure for future calls on the development and even arrange virtual tours to help secure a sale of the investment property. This means the same technology can be used in place of open houses as well.
There are even working AR apps that help out those interested in commercial real estate. They can scan commercial buildings and see the available space inside and get all kinds of info on the property. Some of these apps go as far as to connect investors with the real estate agents directly. AR could become a form of disruptive technology in commercial real estate then it seems.
Again, these applications of AR have not come into wide-use and we have yet to see a disruption from this technology. But keep in mind that’s a big part of what disruptive technology is. There are many experts who believe AR will impact the future of real estate.
Artificial Intelligence and Real Estate Data
Mashvisor is a prime example of the application of artificial intelligence (AI) and algorithms to assess real estate data. AI is born from the ability of a computer to interpret data that it has been given. Even more than just interpret, it can provide insights about markets, real estate property, and even project return on investment (ROI) from rental property.
Mashvisor’s AI tools, for instance, can help real estate investors find an investment property based on any preferences (from market to property type to ROI) they have as well as their finances. These tools reveal to an investor the potential cash flow and cash on cash return helping them make profitable investments. Our AI tools even go as far as aiding real estate agents in matching properties to their clients.
If you’re an investor ready to use AI to help you find the best investment property, click here.
Essentially, real estate technology can be taken to the next level with AI. Rather than just storing real estate data on listings and agent info, AI can alter the way we make investment decisions and even the way agents do business.
If you’re a real estate agent ready to let AI transform your business, click here.
What Does All of This Mean for the Future of Real Estate?
These three types of technologies have been labeled as disruptive technologies in real estate by some experts. Others say that the real impact has yet to be seen. So what does all of this mean for the future of the real estate industry?
It means that, whatever your opinion may be, the growing use of technology in real estate can’t be ignored. While some might argue that the role of agents and the like may become obsolete, even the founder of Opendoor, Eric Wu, says these roles won’t disappear. They will simply need to change and adapt. That’s because the real estate business relies heavily on the human element- advice and guidance from an expert.
Rather than ignore proptech and deny its usefulness, it’s better to explore it and understand how it will inevitably change real estate. How that disruptive change will come about and what it will be, we have yet to see in this industry. But it may not be far off.
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