Real estate tech has trailed behind the rest of the tech world, but in recent years, it seems to be catching up. Every year since 2012 has seen more investments in real estate tech than the year before. 2017 broke more records, and some think 2018 is expected to top that still.
The good news for consumers is that this means a lot of new services are competing to make their mark. The goal of many of these real estate tech companies is to “disrupt” the traditional brokerage by offering a more streamlined process, lower commissions, and even cash back at closing.
What is a Tech-Enabled Brokerage?
As technology begins to play a bigger role in the buying and selling of real estate, you may have heard the term “tech-enabled brokerage.” So what exactly is a tech-enabled brokerage? It is essentially a one stop shop where you can find and purchase a home. They usually provide an easy to use search, possibly even an app, and they continue to provide services all the way to the closing table. These companies usually hold a brokerage license, which allows them to take a commission on the sale (and usually pass some savings on to you.)
Tech-enabled brokerages are NOT real estate discovery platforms like as Zillow, Trulia, or Realtor.com. Those websites provide leads to brokers. Tech-enabled brokerages are also NOT traditional franchises such as RE/MAX, Coldwell Banker, or Keller Williams. Although these companies are starting to incorporate tech into their businesses, they already have an established name and are not trying to disrupt the industry.
Streamlined Services = More Savings for You
There are several things you should know if you are thinking about using a tech-enabled brokerage. The first thing to understand is that they are trying to improve the real estate industry in one way or another. Usually they are trying to fix something that they see as broken, which in turn makes the entire process more streamlined. These companies ultimately want to make the home buying experience better for the consumer (you).
The biggest advantage they offer is lower commission or money back at closing. By making the entire process of buying and selling easier, they have found a way to take a smaller cut, and pass the savings on to you. This is great for tech savvy buyers looking to spend less.
However, it’s important to realize that these reduced commissions sometimes come at a cost. No matter what you may have heard, real estate agents DO greatly help with the purchase of a home. This is especially true for first time home buyers. If a brokerage is claiming to give a large amount back, it usually means that they are providing very basic services to you. This is how they are able to justify reduced commissions. This is not necessarily a bad thing, just something to be aware of.
Comparing Popular Tech-Enabled Brokerages
With Open Listings, you can search the MLS directly on their website. They also allow you to submit an offer for a property directly online. At that point, they will help with the documents needed for closing.
- Buyer Incentives: Buyers receive 50% of the buying agent’s commission back.
- Pros: They make the offer process very streamlined, and if you find the right home, you can put in an offer right away online.
- Cons: Although they offer the most back, the bulk of the searching will have to be done by you. This isn’t necessarily the best choice for first time home buyers who have never been down the path before.
Redfin has a very established and easy to use online search. They work with traditional real estate agents, so after you find a home on their platform, you will be set up with an agent in your area.
- Buyer Incentives: Buyers receive a small amount back from the agent’s commission. It is typically less than 1% of the purchase price. Redfin claims the average return is $3k.
- Pros: Consumers receive all the benefits of an established real estate search with the help of a licensed real estate agent.
- Cons: Because their online search is so easy to use, it is common to casually look at homes, and ultimately get connected to an agent. Be careful not to be pressured into putting in an offer before you are ready.
The mission of Digs is to guide people who are thinking about buying, even if it isn’t in the immediate future. They provide resources for renters and a savings plan to help them save for a home.
- Buyer Incentives: People earn free cash back as a renter that can be used towards the down payment of a home. Depending on how long you are renting, you could earn several thousand dollars towards your home.
- Pros: They are undoubtedly the best for first time home buyers because they provide resources specific to this demographic. Agents specialize in first time home buyers too.
- Cons: Currently they are only available in Chicago, but it appears they are looking to expand soon.
- Bonus: New accounts are credited with a $100 sign up bonus
Reali is a new brokerage that is trying to change the real estate commission structure by taking a flat fee on transactions. They offer unique self-guided visits if the property is listed by Reali.
- Buyer Incentives: Buyers receive up to 2.5% back at close. They give the buyer the agents commission, minus a $4,950 administration fee.
- Pros: Tech savvy buyers can receive a portion of the funds back at closing.
- Cons: Although they really promote their self-guided tours, this convenience is only available for the homes they are also listing.
There is no doubt that all brokerages will start to incorporate new technologies in the coming years. Both traditional brokerages and tech-enabled brokerages will be adding new features to make the process easier for buyers and sellers. Currently we are just experiencing the first wave of tech-enabled brokerages and more will likely be available in the near future. These brokerages are definitely great options for first time home buyers and younger, tech savvy generations.
Don’t forget that your home is likely the biggest purchase you will make in your life, so you will want a certain level of service to help guide you down the path and make sure you are getting a good deal. This makes companies like Digs and Redfin extremely beneficial because they offer the personal touch of a traditional brokerage as well as buyer incentives. Alternatively, places like Open Listings may offer a bigger buyer incentive, but is going to require you to do more of the heavy lifting. This may be overwhelming for people who have never bought a home before.