What is Real Estate Fintech?

*DISCLAIMER: As an accomplished entrepreneur and executive with extensive FinTech and Real Estate investing expertise, I’m frequently asked questions about how I grow my company, my thoughts on a particular market or industry, and a range of related topics. I’ve written these articles to help answer your questions in the simplest ways possible. The opinions expressed are my own. Please be aware that I am not your financial advisor. I am not offering you financial advice. Please consult with an accredited financial advisor before investing. These articles are for educational purposes only. If you have any questions you’d like me to answer, please use my contact form, and I will work to answer your questions in a timely manner.

Real estate?fintech is revolutionizing the traditional property market by leveraging cutting-edge technologies and financial innovations to optimize processes and drive unparalleled growth opportunities.

Fintech innovation came on the scene during the Great Financial Crisis and has completely disrupted the financial services industry. The one-two punch of high-tech in banking has delivered faster, cheaper, and more flexible transactions, changing the landscape of financial services altogether. Consumers across generations have embraced this trend of more convenient personal finance and have come to demand it.

Financial institutions have had a choice: change their ways or be left out in the cold. Bill Gates picked up on this phenomenon in the 1990s, long before the rise of fintech,?stating at the time, “Banking is necessary, banks are not.”

As fintech continues to evolve and mature, several sub-categories have begun to emerge. One of them is real estate fintech, which is where the intersection of high-tech solutions and real estate come together.

Real estate lends itself to fintech, given its dependence on financial services among buyers, sellers, agents, and others. For example,?in 2021, even during the pandemic, the real estate industry saw a transaction volume of $3.6 trillion.

In this blog, we’ll explore the concept of?real estate?fintech and consider the impact of modern technology on one of the most traditional and paperwork-intensive industries in the world that dates back to the late 1800s.

The Evolution of Fintech in the Real Estate Sector

The real estate industry has been mired in tradition, from marketing strategies to the contract to the closing, even as other sectors of the economy have run with modern technology.?As long as things were kept as status quo, there was no impetus for change.

With so many moving parts, inadequate investment, and an old-school mentality, real estate has been one of the few sectors to hold onto its slower methods while the rest of the world has embraced change. With legacy systems and procedures in place, real estate put off change for as long as it could until the health crisis hit.

The pandemic became a catalyst for prioritizing digital strategies among many businesses, and real estate was no exception. During lockdowns, real estate market participants feverishly sought solutions to keep deals moving remotely. This dynamic unfolded when interest rates were hovering at historic lows, an otherwise ideal time for this market, and it was not about to be left in the dust.

This resulted in the beginnings of a mindset shift within the industry, one that realized technology integration was going to be vital to stay relevant. The market has come to recognize the value that tech solutions could deliver to an otherwise antiquated process, though it is still early innings in the process.

While it has not happened overnight, the tide has begun to turn with the evolution of fintech in the real estate sector. Companies have begun to emerge that specialize in providing fintech real estate solutions, starting to take market share away from traditional lenders and the like. The truth is that the transition to real estate fintech is unfolding across verticals, from search to financing to selling and beyond.

Several trends are fueling the growth of real estate fintech, not least of which involves millennials and Gen Zers. To attract the younger generations to home ownership, careers, or investing, a tech upgrade is needed. This segment of the population is accustomed to managing their finances from their mobile devices. They don’t really have the patience for the magnitude of paperwork that’s historically associated with real estate transactions.

In addition, now that the cat is out of the bag on the features that fintech innovation delivers, including cost savings and speedier transactions, there’s really no turning back for industries that have begun to integrate digital solutions, real estate included.

Key Real Estate Fintech Verticals

To get a sense of how far the real estate fintech market has come, it helps to identify some of the market verticals that have emerged and are taking the lead as early movers in the industry’s transition. It’s evident that fintech has begun to make its way across the various roles of the real estate market by the types of startups that are emerging in the industry.

In the anatomy of a real estate transaction, you’ll find many different parts –

• Search?– Fintech has facilitated the rise of search platforms in real estate, including marketplaces that match buyers, sellers, and renters to homes, apartments, and agents.?You’ll also find tech-fueled brokers that harness software to simplify the home-buying process and aggregate the best rates for buyers.
• Finance –?Lending (including P2P) and crowdfunding have already been proven in the broader fintech sector. The role of online lenders has expanded to encompass mortgage loans, where companies specialize in providing fast decisions on approvals and financing for individuals and businesses alike. Even the underwriting process has gone digital, where big data is transforming risk models and paving the way for a higher number of deals to be completed.
• Commercial Real Estate –?Fintech platforms give individuals and institutions alike the?opportunity to invest?in CRE. Harnessing data science like machine learning to optimize potential returns.
• Rentals –?Fintech is making it possible for property managers to oversee their real estate from remote locations so they don’t have to be on-site 24/7. Digital tools allow them to receive rental payments, arrange maintenance and track spending.

The Benefits of Real Estate Fintech

It’s hard to overstate the benefits that fintech brings to a sector ripe for change, like real estate. Whether digital payments result in faster transactions and more liquidity or quicker mortgage approvals, fintech stands to revolutionize how real estate is perceived.

Real estate has long been considered a dinosaur of an industry, but fintech is changing that. Emerging technologies have automated otherwise arduous paperwork processes, but that’s just the beginning. Automated processes result in cost savings in every facet of the real estate cycle. Deals close faster vs. relying on manual processes, where human errors can occur.

Fintech has given more power to homeowners and agents alike, who can harness data tools to determine property valuations and increase the chances of a sale. Sellers can also market their homes to more targeted demographics using software that provides data analysis.

Fintech brings the same user-friendly interfaces that customers have come to know and love in banking to the real estate world. The result is greater efficiency, convenience, and transparency for all parties, including owners, developers, investors, etc.

Fintech solutions also streamline the data analysis process for stakeholders, doing so in a quicker, less pricey, and more efficient way. For example, modern technologies like cloud services are helping to fuel this transformation, where data is used for valuation models and analysis.

The Role of Emerging Technologies

Emerging technologies like artificial intelligence (AI) and the blockchain have taken the entire world by storm and created an entirely new standard for technology. Billions of dollars are being spent to research these innovations, and real estate will be among the industries to benefit.

One of the emerging technologies that are conducive to real estate is the blockchain, an immutable public ledger on which transactions are recorded.

The blockchain has been battle tested in financial services and is being used by major financial institutions for everything from debt issuance in the capital markets to cross-border payments. It has introduced a host of benefits, including greater transparency (since everyone has access to the same ledger), as well as faster and cheaper transactions and settlement times.

Innovative products known as smart contracts make it possible for transitions to be completed in an automated way, removing the need for third parties to be involved. However, real estate is unique in that certain intermediaries like attorneys will still be needed for the foreseeable future. Nevertheless, smart contract technology has the potential to revolutionize real estate.

Artificial intelligence is also changing the game, allowing for massive amounts of data to be analyzed in mere seconds. AI algorithm models be applied in both residential and commercial real estate.

One example is valuations/home pricing, where AI harnesses data such as a home’s number of bedrooms, the school district in which it’s located, and recent transactions in the community to determine results. AI removes the chance for human error, giving stakeholders more confidence and certainty in the potential of a transaction.

As technology becomes more prevalent in real estate, so must the industry’s defenses in areas like cybersecurity. Given the role of financial services in real estate deals, it’s vital for the industry to address security with a sense of urgency.

The wheels of regulation tend to turn slowly in any industry. The regulatory framework for fintech is?still being established, not to mention emerging technologies like the blockchain and AI. As these policies are more clearly defined, real estate will have a greater insight into how they can be applied to the industry.

The Future of Real Estate Fintech

Even with all the progress that fintech real estate has brought to this market, it’s still early days. The first step was changing an outdated psychology that had been embedded in the real estate sector, and that shift has already begun.?Next is adoption.

Startups are innovating, and the industry is figuring out which ones are best suited for their needs as a whole. Real estate is unique in its need for participants and intermediaries, including competitors, to communicate with one another for the sake of a deal.

As a result, it’s important for the solutions to be designed in such a way that they support these unique needs without compromising the integrity of the deals that tradition has provided until now.

According to?an EY report, as of 2021, more than two-thirds of real estate-related businesses identified tech adoption as a high priority, naming benefits such as greater efficiency and lower costs. As the industry continues to move in this direction, this acceptance of fintech will become more apparent in their business models.

Conclusion

Real estate may not have been an early mover in the world of fintech, but that could work to the industry’s advantage. It’s had the opportunity to watch and observe the way that tech integration has unfolded in other sectors of the economy first, including the good and the bad.

As a result, some of the trial and error is already behind, and real estate can move forward with greater confidence that the tech solutions it is adopting are more mature.

The potential for fintech in real estate is vast. Certain jurisdictions are further ahead than others, with states like Florida having already completed real estate deals?on the blockchain?with Bitcoin. The more digital solutions are integrated into the industry, the wider adoption will be across regions until it is as natural and common as fintech has become in personal finance.