Has Real Estate Reached a Digital Tipping Point?

When it comes to technology, the real estate industry has been a dormant giant. For far too long, this large and complex industry has relied on its scale and legacy processes to operate. An ongoing joke among industry professionals is that if you go to a construction site and take a black and white photo, you wouldn’t be able to tell which century the project belongs to. However, we are reaching the digital tipping point in which the industry needs to digitalize or suffer. Regarding the sales of new residential construction, recent surveys indicate that for the first time, a majority of customers are comfortable quoting, reserving and even purchasing a new apartment fully online, opening a new era of digitalized real estate processes that will transform the industry deeply.

Real estate is a slow-moving industry because it is big, complex and fragmented. Historically, everything related to real estate has been slow, particularly on the development of new construction and the processes associated with purchasing and financing new real estate. It is somewhat funny that an industry so large, and which deals with a family’s largest financial purchase, moves at such a slow pace. One would expect that industries dealing with large sums of money and highly motivated buyers would provide a faster process to close. The risk of losing a sale because of delays is just too high. However, in an industry in which projects are typically measured over the span of years, investment funds normally have seven- to 10-year horizons, and permitting processes take months to years, it seems normal for the rhythm to be slow. From the point of view of a customer purchasing a new home, the process on average lasts four months to select a unit plus one extra month of closing.

Within the real estate industry, there is also a long history of traditions. When it comes to sales of new homes, many directors live according to the rule of never releasing the full price list and making the lead visit in person to quote and pressure the close. These long-held tenets worked at a time in which clients were not digitally empowered and patient. Our clients do not live in such a world anymore. The expectations created by our always-improving digital experiences have shortened the patience of customers and dramatically increased the expectations of what customers want to do digitally. Ask for someone to come physically to a place to discover how much a product costs and you will experience massive drop-off in the customer journey.

Today, these long-standing traditions are being transformed by technology. Last month at Alo Home, we ran two fascinating surveys that provide valuable insights. In the first survey, we asked 75 industry insiders if they would quote or purchase a new home online, and 46 percent responded yes. This is in stark contrast from when we ran the survey in 2020 and only 15 percent of industry experts responded that they would quote or buy a new home online. However, we also ran the same survey across a dozen websites for real estate projects operated by Alo Home and the response was that 51 percent of homebuyers would quote or buy online. In other words, the real estate industry has reached the tipping point in which a majority of buyers want a deeper and better digital experience when purchasing a new home.

This new digital wave in real estate is just starting. Through our work with clients and investors, I constantly get asked about my perspective on the influx of technologies focused on real estate. First, I believe it is an incredibly exciting time; we are privileged to witness the transformation of a sleepy giant into a faster and more customer-centric industry. This digital transformation for real estate is way overdue. Second, as in any other vertical, I believe that the businesses that solve large problems and can own categories and operate capital-efficient models will win. Our advice for real estate companies is to work with two- to three-year plans focusing on the highest pain points first and testing/implementing solutions that are open and interconnected. At Alo Home, we are working on several integrations with other real estate technology companies that fit these criteria, from contract management to digital mortgage origination, as well as market intelligence for for-sale housing.

Two things are certain though: one is that the real estate industry is reaching its digital tipping point because of customer demand for better digital experiences, and second, that the experience for homebuyers is about to finally get much better.