Residential proptech (shorthand for “property technology”) has exploded over the last decade, bringing amazing innovations to the residential real estate space. But it’s not all good news. The increase in Proptech has also created some less desirable outcomes, as well as some “advancements” that are just plain silly.
Let’s explore some of the ways that proptech has forever changed residential real estate. Here’s the good, the bad, and the silly of residential proptech.
The Good in Proptech
There is a lot to be excited about in the world of residential proptech. Here are some of the most impressive applications for technology in today’s residential market:
1. Remote Online Notary (RON) Services
Prior to 2011, property owners were required to meet face-to-face to have a licensed notary witness their signatures on critical documents like deeds and loan docs. Virginia was the first state to authorize remote online notary (RON) services, which allowed notaries to witness signatures via live video feed with the signatories.
Other states were slow to follow suit, but the COVID-19 pandemic forced the issue when people were encouraged to stay home and handle their business online. As of 2023, only a handful of states are holding out on the RON revolution.
In states that allow RON, owners and buyers can sign docs without leaving home or wasting money on expensive courier services.
2. Automated Property Management
Today, tech automation can handle many of the tasks that were once completed by property managers manually. These include:
- Rent collection tracking,
- Email reminders to tenants with past due rent.
- Applicant screening,
- Maintenance appointment scheduling,
- Renewal rate calculations,
- Lease, renewal, and disclosure generation.
This allows property managers to work more efficiently to better serve their residents and increase their properties’ profitability.
3. Smart Home Features
Smart locks, smart lights, smart doorbells, and smart temperature control are making homes safer, more comfortable, and more energy efficient. Smart features allow residents to monitor and affect their home systems directly from their phones.
So, for example, if someone rings your doorbell, you can access the doorbell camera from your phone to see who’s there and decide if you want to unlock the door for them. No more leaving your keys with the neighborhood teen who waters your plants while you’re on vacation! You can simply open the door for them at the agreed-upon time. You can even schedule the door to automatically unlock at certain times, so you don’t have to interrupt your vacation!
4. Online Real Estate Investment Platforms
Tech-based real estate investment platforms have made it easier than ever for real estate investors to access pre-vetted, professionally managed real estate development deals. This has been particularly important in the growth of real estate crowdfunding services. With crowdfunding, investors can buy into a deal for a fraction of the capital that would be required for a traditional real estate investment. And, because the deals are professionally managed, you don’t need any prior experience or market knowledge to see strong returns from your investments.
For these reasons, the global crowdfunding market is expected to grow from $11 billion in 2021 to over $250 billion by the end of the decade according to Polaris Market Research.
5. “Generative AI” for Marketing and Management
Have you used ChatGPT to write correspondence to tenants? Have you used virtual staging software to insert digital furnishings into photos of your vacant units for market purposes? Those are both examples of generative AI.
“Generative AI” is something of a misnomer, implying that artificial intelligence is creating brand-new content. What’s actually happening is that sophisticated algorithms are predicting what characters or pixels should be used to fulfill a prompt, based on existing text, images, and videos online.
While this tech is still new, and the results can be unpredictable, the algorithms are getting better with use, so you can expect this tech to continue improving.
The Bad in Proptech
Here are some of the worst outcomes of recent proptech innovations:
1. Increased Application Fraud
Renters and homebuyers now have easy access to software that can generate fraudulent documents for their rental or loan applications. Pay stubs, tax returns, bank account statements, and any other document that has traditionally been used to confirm income and assets can now be faked, leading to an increase in fraudulent applications.
In 2021, property managers and rental property owners received an estimated 11 million fraudulent rental applications.
2. Unfair Denials
Automated tenant screenings and mortgage borrower evaluations are intended to remove any human bias from determining who has access to housing. Unfortunately, the automation models are trained on existing approvals and denials, which often contain subliminal biases.
If, for example, applicants from a certain area code are historically less likely to qualify for a home loan, the evaluation algorithm may interpret this as a sign that applicants from this zip code should be given a lower eligibility score.
This can perpetuate biases while removing accountability from people who have the power to intervene for these unfairly denied borrowers or renters.
3. Obsolete Jobs
As with any technological advancement, some jobs become obsolete as tech automation replaces human labor. And, even if certain jobs aren’t made obsolete, you may need fewer workers if many of their tasks can be efficiently automated.
But there is a silver lining: studies show that tech advancements typically create as many new job opportunities as they displace.
The Silly in Proptech
And finally, here are the proptech “advancements” that are just silly:
1. Online Property Value Estimates
Having an algorithm calculate fair market values for individual properties is a brilliant idea in theory. But in practice, there are simply too many variables for online home value estimates to be accurate.
Take Zillow’s Zestimate as the industry benchmark. Zillow claims the nationwide median error rate for on-market homes is 2.4% (as of September 2023). That sounds impressive. But then you look more closely and find that:
- This applies only to active listings, which have presumably been recently updated to reflect renovations and upgrades. When you look at off-market properties, the error rate jumps to 7.5%
- It’s not uncommon for Zestimates to be 20% or more off from the actual market value.
- The accuracy varies by market. In Pittsburg, for example, the median error rate is 12.7%.
As an example, if you have an off-market property in Detroit (where the median error rate is 8.7% and the Zestimate falls within 20% of the sales price only 78.2% of the time), a $1,000,000 Zestimate means that your home is most likely worth $800,000 to $1,200,000. But there’s still a 21.8% chance that the actual value falls outside of that range.
Unless we have bots physically combing properties to keep their conditions current, online property value estimates are a bit of a joke. You’re better off having a real estate agent complete a “comparative market analysis” to determine the real value of your home.
2. Gambling Obscene Amounts in Fad Tech
The first Bitcoin-backed mortgage originated in 2018. The first home transferred via NFT was purchased in 2022. But demand for both Bitcoin and NFTs has plummeted over the last year, providing a good lesson in the dangers of gambling large amounts of money in tech that has no proven track record of success.
While alternative investments can offer higher return potential than traditional investments, they also come with more risk. Investing more than you can afford to lose in untested proptech is just silly.
3. Dismissing Valuable Tech After One Failed Application
The NFT bust is a good example of promising tech that was improperly utilized. Without getting too technical, NFTs (non-fungible tokens) are simply unique strings of code that can be used to transfer ownership of an asset digitally. NFTs were notoriously used to create a marketplace of worthless digital cartoons. The ownership code could be bought and sold, but anyone could save a copy of the image and use it freely.
But there are legitimate proptech applications for NFTs. For example, NFTs could replace paper deeds to confirm ownership of real property. Furthermore, when combined with blockchain technology, NFTs could track ownership transfers over time, effectively eliminating the need for title searches and title insurance over time.
Don’t dismiss promising proptech because it was impractically applied.
The Bottom Line
Proptech is a broad category, with the potential to change the lives of property owners, investors, and renters. While there are a few downsides and silly uses, there is too much good in proptech to ignore.