If you ask traditional real estate agents about proptech, most of them link proptech with the online real estate agents’ business model. We are talking about those companies that reduce real estate intermediation and produce advertising proposing themselves to the final client as a more affordable, efficient, and easy solution compared to the rest options in the market.

When we analyze these companies’ work, activities, and services, we can appreciate that they have done a twist to the traditional intermediation with innovation. It is a change in the business model adapted to current needs. But what are the main differences between both models?

If we look at these models that have been coming out in Europe in recent years and that have redefined the game board of the real estate sector, we can see that these business models have many strengths but also some weaknesses. Therefore, this is an excellent time to proceed with its analysis, because although these business models indeed have some areas for improvement, it is also true that customers who use these solutions have needs not covered with the traditional intermediation.

Are we facing a new gap in the market for a new business model?

To respond to these questions, let’s analyze the market!

 

First of all, we will analyze the strengths and opportunities that online agents detected and faced. Why did they come out? How did they solve the market needs?

  • Because clients in the real estate sector had already started to make the digital transformation, so they needed to understand the rates in the real estate sector, to be an active part of the process, and to have control over their properties sale.
  • Because clients needed to trust in the industry due to some professionals’ low reputation.
  • Due to society’s low perception of the real estate sector as something new, technological, digital, and at the leading edge. New trends had already appeared in other markets, and it was necessary to find these new trends in the real estate sector as well.
  • Because it was a good time for investors. In recent years, investors have been on the hunt for proptech startups. Online agents were scalable and working on an exciting sector in a time of market mistrust. Therefore, investors saw a brilliant opportunity, and they contributed capital to make them fly.
  • Online agents proposed an economy of scale with process automation, which reduced the cost per operation so that they could lower prices. These prices are associated with specific services, allowing the client to participate autonomously, being part of the process.
  • Online agents not only used the investments on advertising but also, some of the companies invested in research and development, which served to discourage potential competitors with fewer resources from appearing in the market.
  • Online agents understood the new customers’ communication through the online world and social networks. These companies developed a strong presence in social networks with high levels of participation. Likewise, they designed their web pages to attract traffic and convert contacts into customers.
  • Finally, Online agents used well-established computer systems that guarantee efficiency in internal and external operations.

 

Let’s go to the other side. What are the weaknesses and threats that online agents have?

  • They have a fixed rate independent of the value and characteristics of the property, resulting in an inconsistent offer.
  • They have a flat price, but the price can increase with extra costs depending on the needs of each client. Real estate agent rates were not the problem, but the understanding of them, the participation, and the control in the process.
  • Some years ago, online agents were newborns in the real estate sector; they did not yet have a consolidated reputation. Therefore, they built it through aggressive marketing and advertising that have a high cost for the company, and that cost stifles the company’s income, making it difficult for them to be profitable.
  • The consumer’s behaviour continues to change every day, which puts pressure on these companies if they want to continue to stay at the forefront of intermediation.
  • In this post- COVID situation of uncertainty, investors will measure their investments in startups much more. Perhaps the origin of this new investor control was produced by WeWork with its partner Softbank when WeWork shares stopped worthing what was supposed.
  • NOT all is fair in love and war. In this case, the advertising war with the traditional real estate sector could have isolated online agents from an industry where collaboration is often part of success. Although it is also true that some of these companies have begun to open lines of business that include professionals in the sector, diversifying their product.
  • In the last two years, the creation of new online agent companies has taken off exponentially. In a recent study carried out by API, only in Spain, we have passed from 0 to at least 80 online agents startups. The competition is starting in this real estate business model. As competition increases, market share decreases, and these companies will have to rethink their differentiation and added value strategy.

 

In conclusion, if the differential factor is the technology and to include the client into the process, taking into account the changes of professionals towards digitization, will new business models appear on the market?

New trends in consumer behavior and new technologies, together with differentiated pricing strategies, will provide new opportunities in the market. Professionals have the opportunity to add personality and charm to technological solutions and new models, thus differentiating themselves and finding new paths for innovation and continuously adapting to the market.

 

Sheila Gracia

Service’s Director at the Catalan Real Estate Agents Association