Real Estate at a Crossroads

by Gregory Charlop

  Blockchain and Bitcoin

  Along with artificial intelligence and virtual reality, blockchain and cryptocurrencies like Bitcoin are technological innovations that could reshape the real estate marketplace.

  The blockchain is a list of linked records secured by cryptography. The records, called blocks, are time-stamped and distributed throughout the internet. As a result, they are considered relatively secure and resistant to tampering. Theoretically, they can be used to record property deeds or even create smart contracts.

  Matt Murphy, a partner at venture capital firm Montage Ventures, sees great potential for blockchain with real estate. “When you go into a typical real estate brokerage office, there still are file cabinets. And in those file cabinets are purchase contracts that are being stored for three years to seven years. All of that could be digitized online. There are companies like DocuSign that are helping with digital signatures and digital file storage. But that can also happen on the blockchain. The title and the escrow space, title records, are currently stored on a local level, on a city-by-city basis. So bringing that online, digitizing that, storing that in a public, secured ledger could unlock a lot of value in the data that's hidden within those documents and open up a lot of innovations within the real estate sector.”

  Bitcoin is a form of cryptocurrency (there are many, but Bitcoin is the most popular). It is recorded on the blockchain. There is no central bank and Bitcoin is not regulated by a central government. Some users prefer Bitcoin over conventional currency because it offers more privacy, can be transferred instantaneously, and has low transaction costs. Bitcoin can be used to buy and sell properties if the seller is willing to accept Bitcoin as payment.

  One of the world’s leading experts on blockchain and Bitcoin with real estate is Ragnar Lifthrasir, interviewed here. He described Bitcoin this way: “Bitcoin isn't a company or an organization or a government. Bitcoin is simply software. It's an open-source protocol that anyone can look at, can view, can try to adapt. It's an open-source protocol, just like we have an email protocol. All email applications use the same email protocol. That's why you can have different email addresses. You might have Gmail and I have Yahoo, but they can talk to each other. Why? Because everyone is using the same protocol, and anyone can build an application on top of the email protocol. That's what Bitcoin is. It's an open source protocol to transfer value.”

  Lifthrasir said blockchain replaces or reduces the need for third parties across lots of real estate applications, such as title transfer, chain of title, money currency transfer, and certain contracts. Blockchain allows users to “make things more peer to peer, replace middlemen with code, basically,” Lifthrasir said. “With money (transfer) you have bitcoin. You don’t need the intermediary of a bank.”

  While there is a lot of excitement about Bitcoin, some are urging caution. Nick Bailey, former President and CEO of CENTURY 21®, said, “Cryptocurrencies are certainly gaining a lot of attention, but right now, there are many risk factors that could impact the success and security of a transaction, for example, the volatility of Bitcoin and the current timing associated with the various steps in the real estate transaction.”

  Will Bitcoin take the place of cash and will the blockchain replace contracts? In my view, neither of these technologies is ready for prime. However, any savvy real estate agent and brokerage would be wise to stay ahead of this trend so they’re ready to hit the ground running if/when the blockchain breaks out.

  Interview with Bridget Frey, CTO of Redfin

  Gregory Charlop: Bridget, you're the CTO of Redfin and Jani, you're the SVP of Communications. [Author’s note: Jani Strand is no longer with Redfin. She is the former SVP of communications for Redfin]. Redfin is one of the most internet-savvy real estate companies. Thank you for joining us for this book.

  One of the central premises of the book is the transformative power of the internet on how folks buy and sell homes, which is obviously something you understand very well. The easy availability of the MLS in people's living rooms or on their phones is fundamentally changing the entire real estate sales process in America. My first question: are most people these days using the internet to search for homes? Or is it more of a niche group of buyers?

  Bridget Frey: The vast majority of buyers are using the internet to look for homes, find homes to tour, and see prices. Survey data tells us most customers are actually using multiple websites during their search, and they become quite savvy at using data.

  Jani Strand: Data shows that more than 90 percent of people search online.

  Gregory Charlop: Wow. Very impressive. Do you think they're using it just to kick the tires? Or do you think they're actually seriously looking at homes with the internet?

  Bridget Frey: There’s a broad spectrum. On one end, you have people checking out the value of their friend’s new house and real estate enthusiasts browsing homes for fun, or people interested in their own neighborhood trends. On the other, you have people using technology to find homes quickly and compete in a fast market, organize their open house schedules, and figure out what price to offer.

  Jani Strand: We actually see people using technology from initial search all the way to making an offer. Our latest data shows that one out of three home buyers made an offer on a home sight unseen.

  Gregory Charlop: That's a very impressive statistic. What do you think customers are looking for when they check out homes on the internet? Do you think they're just looking at pictures or do you think there is any particular information that customers are looking for?

  Bridget Frey: First of all, today’s real estate consumer really wants to be informed. They want the data to be transparent. They don't want those old days when you had to drive around to a number of different real estate offices and look through binders of homes for sale. More recently, we see consumers demanding speed and instant gratification. It’s what we call the on-demand economy, where people expect to be able to go to a website and book a table for a restaurant. They expect to be able to place an order and have some things show up on their steps the next day. This is a major focus at Redfin, as we look at problems like automatically scheduling tours, something that we've invested in over many years. We want to make it as easy to tour a home as it is to order a pizza.

  Gregory Charlop: That sounds like a millennial thing; The desire for immediate satisfaction.

  Bridget Frey: Certainly, people who've grown up with technology have come to expect this, but we're seeing demand for that type of thing across all of our demographics. Convenience is something that, really, everyone can get behind.

  Gregory Charlop: Absolutely. How do you think real estate agents should use technology to reach these internet-savvy customers? Are they doing enough?

  Bridget Frey: At Redfin, we build technology for our agents and for our customers themselves. The amazing part is linking the two together. That’s extremely powerful. Our agent-facing technology helps our agents be extremely efficient and knowledgeable, arming them with data to give the best possible advice. We automate everything that a computer can do better than a human, freeing our agents to spend their time building relationships with their customers and helping them win.

  If you think about it from the customer perspective, what do you want your agent to do? Do you want them to fax documents and paste things into PDFs, or do you want them to be there to talk with you, to walk through homes, to answer a question, to get to know you so they can provide really personalized advice? I think that technology helps an agent to do more of that personal advice, and less of the faxing and document management and all those other things.

  Gregory Charlop: Some readers may not be very familiar with Redfin, so can you briefly describe Redfin—the process and how it works and what makes Redfin different from a more traditional real estate firm?

  Bridget Frey: Absolutely.

  We are a technology-powered brokerage. We are using technology to make every part of the real estate transaction more efficient a
nd also less costly. Our goal is to have the most successful customers in the industry. Redfin is unusual in that our agents are employees of the company. They receive a salary and a bonus based on how satisfied a customer is at the end of our transaction. They also get comprehensive healthcare and paid time off. Why should a customer care? Because this culture of partnership between our agents and engineers creates a better service for customers. An agent whose interests are aligned with the customer’s is very different from the traditional contractor-based commission model. That also means that we can train those agents, and we can have them use our technology and get all of those things onto the same platform.

  Next is our investment in technology, which I think you well know. We have invested in technology such that our agents are able to handle three times as many happy customers than the traditional real estate agent. They're just far more productive, and that means that we can offer our service at a lower cost. We charge 1 percent in most markets to list your home versus the traditional commission of 2.5 to 3 percent. We also offer a refund to our buyers at the end of the transaction. You get full service, the best tech, and you pay less. That’s what technology should do.

  Gregory Charlop: You had mentioned an interesting stat, that your agents are able to handle around three times as many customers as a traditional agent. Certainly, the Redfin agents I've worked with have all been excellent and really very experienced, probably because they handle so many transactions.

  Bridget Frey: That's right. You can become a local expert in the real estate market very fast if you're doing so many transactions in a very small local area.

  Gregory Charlop: Does this technology and the efficiency that you're able to achieve mean that there are fewer real estate person hours required for each transaction? And if that's so, do you envision fewer real estate agents being needed in the future? In other words, will you need as many real estate agents to sell the same number of homes in the coming years?

  Bridget Frey: We think about it in terms of which part of the job does a real estate agent need to do, and what parts can be handled either by technology or through a team. In the case of our agents, like I said, most of the time they're meeting customers. Our agents don't need to be cold calling or prospecting as traditional agents soften have to do, especially when they're starting out.

  All of our agents, from day one, have a team to support them. That's something that only top-producers enjoy in traditional real estate. Having a team of transaction coordinators and tour schedulers and folks answering the phone or going on tour when they are already booked with another client. This is something Redfin agents have on day one. We look at the combination of the agent, the technology and the team, then use that to make the entire experience amazing.

  For example, Fast Offers is a new technology for the agent that makes writing an offer much faster and more accurate. Starting from when a customer says, "Hey, I want to buy this house." Now the agent needs to pull together a packet of paperwork, let the listing agent know about the offer, any disclosures, any estate forms, and all the rest. That can be quite a time-consuming process that varies from market to market. But figure an hour or two, maybe even a little longer for a new agent. Fast Offers automates everything that can be automated and pulls together all the data based on the home and the customer.

  We take information the customer has given us online, automatically paste that into the PDFs and all the documents and staple them all together. We get the electronic signatures and all the rest. That means that even a new agent can do this in a matter of minutes. That really increases the efficiency of that agent without sacrificing service and practice. In fact, it's better for the customer if you can get that offer onto the listing agent's desk before anyone else. That's where technology can really help to make the agent more efficient.

  Gregory Charlop: One of the developments I’ve seen lately in the real estate business is these two-dimensional immersive tours. The kind of things you might film with a Matterport camera or a GoPro or something similar. They almost appear three-dimensional as though you're walking through the house. What are your thoughts about this type of technology? And do you see this type of thing as a future standard?

  Bridget Frey: We love that technology. We're early adopters of it. Anytime we put a home on the market, anytime we list a home for sale, we actually take a 3D scan of that home and put it on our website. For any Redfin listing, you can get that experience, where you can kind of walk through the home as though you were there. This means buyers can get a sense of what it's like to be in that space before going on a tour, or maybe not need to tour at all. Our sellers just love it as well. We believe this is something that consumers are going to come to expect over time.

  Gregory Charlop: In a similar vein, virtual reality and augmented reality are capturing a lot of attention in the press. They certainly caught my eye. There are a lot of new phones out now that have some great VR and AR features. What are your thoughts about virtual reality and augmented reality in real estate sales? Is that coming soon or how do you think something like that could be used?

  Bridget Frey: We are very interested in augmented reality and some of its applications in real estate. You can imagine things like, when you're walking through an open house, messages pop up about new appliances or remodeling details. That can be part of your experience of touring the home. I do think that some of the technology is still a little bit early. We're just getting past the Pokemon Go craze. There's still more that needs to happen. When you're selling someone's home, the quality of the video, the photography, the augmented features have to be extraordinarily high. This is a very costly asset that people are trying to sell, and I do think that the technology will have to be quite good before it becomes something standard in real estate.

  Gregory Charlop: Yeah. I agree. I think it's still probably in its infancy, but it's amazing what could potentially be done with that technology once it's more ubiquitous.

  Bridget Frey: Oh, absolutely.

  Gregory Charlop: One of my favorite topics is artificial intelligence. How is AI and machine learning being used in real estate? And does Redfin use artificial intelligence, perhaps, to help match buyers and sellers or help people find properties?

  Bridget Frey: Absolutely. This is actually a huge area of investment for us. I joined Redfin six years ago to found our analytics engineering team. We built our first big data systems back then to learn what we could do with machine learning to help our customers and our agents. One of the first features we built was to help recommend homes to consumers. We've always had a feature on the website where you can save a search. You can say, I'm interested in homes between 400,000-600,000 dollars with two bedrooms. We'll send you an email that lets you know when a new home comes on the market matching that criteria. It turns out that our machine learning recommendation algorithm is actually much better than the customer themselves. The customer is four times as likely to click on a recommended home as they are on a listing that matches their saved search.

  We're actually better at producing homes they might be interested in than they are themselves. That's incredibly exciting, because it means that we can really help customers find the perfect home. We've done a lot of other things with machine learning as well to help our agents figure out ... You know if they have five minutes in between tours, what is the best thing to do at that time? Which customer should they reach out to? We have machine learning conduct that as well.

  Where it really transforms things is on our listings business, where we have invested in the Redfin Estimate. It's the most accurate online home value estimate. It's more than twice as likely to be within 3 percent of the final list price as any other online home value estimate. That's an incredibly powerful tool for our listing specialists who use it to figure out how to price a home and come up with a pricing strategy before they walk into someone's living room to meet a homeowner.

  All of these examples are a huge frontier for us. We have a ton of da
ta in real estate. It's an industry that's flooded with data. There are so many exciting applications.

  Gregory Charlop: Your computer algorithms are better at guessing a customer's interest than customers are themselves.

  Bridget Frey: It really shows you how hard it is for a customer to sift through all that data. We talked about the intent of the customer when it comes to all these websites. They're craving information, getting their hands on that first-person perspective on the idea, and yet if we could help them sift through that data through machine learning, it would be much easier for them. That's really very exciting.

  Gregory Charlop: I totally agree. Often, people don't really know what they want. They like data, but they get overwhelmed by choices. A computer that could help guide you to make a better choice would be very useful. Sometimes the computer can know what you want better than you might yourself.

  Bridget Frey: Absolutely.

  Gregory Charlop: Do you have any thoughts about the use of chatbots in real estate?

  Bridget Frey: I think that there's a set of questions that a chatbot could answer that are kind of easy to answer. How many bedrooms does this particular home have? A lot of those kinds of questions could be answered by just looking at the webpage for that listing. But interacting with a chatbot might also be a good experience for some customers.

  But I think pretty quickly people get to a place where they need to talk to a licensed real estate agent, where they need direct access to that person, and it's beyond what a typical chatbot is able to do with current technology. I think the interesting question will be: how many customer questions can the chatbot handle that are in between the easiest things and what an agent needs to handle themselves?

  Gregory Charlop: Could you tell us a bit about your background?

  Bridget Frey: Sure. I started programming when I was five with my dad on an Apple 2E in our kitchen. So, I fell in love with technology from a really early age. I majored in computer science at Harvard, and then I've spent my career working at high growth startups like Redfin. I joined Redfin because of the opportunity that we had here to really help customers with the biggest transactions of their lives. Also, the culture of this company is really special. It's a collaborative culture where real estate agents and engineers are working together, where we do our best work to help people to collaborate and come up with the best ideas. I love that environment. I feel like I learn so much every day, and that's how I ended up here.