A Real Estate Renaissance Post-COVID

We’re now at the half-way mark of 2021 and real estate markets show no sign of slowing down. Low mortgage interest rates coupled with heightened competition continues to push the market higher.

But the path to success hasn’t been all sunshine and butterflies. Despite current growth patterns, industry professionals had a tenuous path of uncertainty and risk to build the market where it is today.

Initially, industry leaders had to play the role of triaging economic headwinds brought about by the pandemic. Now that the market has stabilized (and in fact expanding), reflecting back to challenges that real estate practitioners have faced shows a forced evolution of the industry as we know it.

While COVID-19 presented a lot of challenges for the industry, the silver lining is that it also required industry professionals to react, opening new possibilities of obtaining and conducting business, as well as approaching risk.

Where other industries seem to have fallen short, real estate has risen to the challenge and embraced change. Notwithstanding obvious challenges, it’s safe to say real estate may be on the forefront of a new renaissance.

Consideration for Credit Standards

Since the financial crisis of 2008, real estate and mortgage markets experienced a tightening of legislative oversight which in turn led to a tightening on credit requirements. The basic premise was to help avoid another subprime financial disaster.

The Dodd-Frank Wall Street Reform and Consumer Protection Act instituted consumer protections making it difficult for some lenders to meet specific reporting requirements while the Consumer Financial Protection Bureau adopted qualified mortgage rules that required lenders to jump through additional hoops, ensuring mortgages being originated met certain requirements.

As the pandemic emerged, providers became panicked because borrowers that previously qualified under the current rules set no longer qualified. Borrowers were losing their jobs or being furloughed. Mortgages were going into forbearance.

But while these obstacles bubbled, making it harder to originate new mortgage loans, it also forced lenders to react in a way to better hedge against risk.

The reaction was a crackdown on credit standards. Providers introduced new overlays and eliminated certain segments of business (such as non-QM mortgages). Additional due diligence meant better quality loans being originated.

This has led to more opportunities, especially for non-bank and digital lenders who may not have the same capitalization requirements as traditional depository institutions.

Building Out More Inventory

Inventory shortages have certainly plagued the industry over the last 18-months and have helped put upward pressure on home prices. However, this has helped force the market to refocus on supply.

When the pandemic first emerged, real estate agents and brokers found it challenging to work with multiple new buyers who wanted to buy a new home but couldn’t penetrate the market, competing with exorbitant competition.

Many providers took this as an opportunity to lean into new construction. According to the U.S. Census Bureau and the Department of Housing and Urban Development, new starts in April 2021 were 60.9% above those in April 2020.

Now more agents are working directly with builders to get new buyers qualified and into newer, better homes rather than face extra competition bidding on an existing dwelling.

Also consider the fact that thousands of sellers have been concerned about exposure to the virus and the health risks surrounding selling their home. This has also made it difficult for providers to conduct business by traditional means.

Since traditional business practices haven’t been sustainable within the current market environment, real estate professionals have had to get creative and rely on non-traditional processes.

For example, there has been an increased reliance on video technology, 3-D tours, and even virtual reality staging services. This is reshaping the real estate landscape to some degree as more and more buyers are now becoming more comfortable buying a home without ever completing a physical showing, inspection, or walkthrough.

Technological Enhancements

One of the biggest obstacles that real estate faced heading into the COVID-19 pandemic was that the industry was fairly behind others in terms of digitization. While real estate is one of the oldest industries in the United States, it has been slow to adopt new technology.

But as the environment shifted, providers had to pivot quickly and adapt to changes in the way business was being conducted. Many processes that were standard practice could not be accommodated amidst public health risks.

Take traditional appraisal inspections for example. Appraisers were no longer willing or were not allowed entry to inspect subject properties. Similarly, borrowers and sellers no longer wanted to sit at a closing table in proximity with multiple individuals.

As a result, the industry as a whole has been sort of pulled into the modern era and forced to adopt new technological enhancements. This has opened the floodgates for emerging companies whose core competencies focus on increasing efficiencies.

eDisclosures and eClosings have now become a staple, allowing borrowers to sign documents electronically and close on sales remotely. Third-party verifications are becoming increasingly popular and integrated into software systems making it easier to obtain and review findings.

The industry is also turning to big data to help streamline applications and shorten the transaction lifecycle. Just one example is the heightened issuance and reliance on appraisal waivers based on property data digitally analyzed on both a micro and macro level.

This new wave of technological enhancements is disrupting the industry and has only broken the surface. It seems that evolving out of COVID might just be a new era of how people buy and sell real estate.

REACH Cohort Overview: Innovators and Trailblazers of Real Estate Tech

REACH is a stage agnostic scale-up program. Our job is to help transform the promising technologies of tomorrow into the leading real estate solutions of today and we empower entrepreneurs to do this across the globe. Here are the 17 companies we’ve backed this year in the US.

2021 REACH

Aryeo:

The visual content platform for the real estate industry

Aryeo is building the future of visual real estate content. The platform provides photographers, agents, and brokerages with a centralized content system enabling consistent data feeds, marketing automation, and streamlined workflows.

Feather:

Furniture Rental Redefined For the Modern Generation

Feather offers a next-generation approach to furniture and home decor rental. Customers can create a home they love without the upfront cost and commitment of traditional retail, and reduce furniture waste in the process.

K4Connect:

Technology innovation for senior living

K4Connect is a mission-driven technology company that integrates the best in technology to serve and empower older adults, the caregivers and communities who support them.

Knock:

The smart way to buy before you sell

Knock is on a mission to empower people to move freely. The Knock Home Swap™ makes it easy for consumers to buy their new home before selling their old one, skipping the hassles of living through repairs and showings, paying only one mortgage at a time, and having home prep covered upfront so their old house sells for the highest possible price.

Landis:

Landis helps realtors earn a buyer’s commission today, by working with the homeowners of tomorrow

Landis helps realtors close on transactions with buyers that are not pre-approved yet. The company buys homes for clients prior to their mortgage-readiness with realtors at the center of the transaction, generating full commissions.

Milestones:

Attract and win customers for life

Milestones Labs is an Austin, TX-based technology company that develops marketing and customer experience software to help real estate professionals collaboratively guide clients to buy & sell homes, and manage home ownership.

Plunk:

Boost your home value with the right renovation projects and partners

Plunk empowers homeowners to build wealth through their homes with a first-of-its-kind mobile app. Through AI, machine learning, and image analysis, Plunk helps homeowners make smarter financial decisions and identify the right partners to grow their home’s value, including real-time analysis, data-driven insights, and personalized recommendations.

Super:

Home warranty. Reinvented.

Super is a San Francisco-based technology company reinventing home warranty. By providing a vastly superior service experience through a data and technology-driven approach, Super is on a mission to make caring for the home completely carefree.

2021 REACH Commercial

Cove:

Real Estate. Simplified.

A technology platform that partners with real estate owners and operators to create in-person experiences that transform how people engage with their physical environment, bringing office or residential hospitality to the customer’s fingertips.

GroundBreaker:

Impress your investors

A software and investor portal to streamline fundraising, investment management, and investor relations for real estate General Partners.

Land Intelligence:

The Rating Agency for Land

A premier provider of actionable intelligence for new land development deals, simplifying the land acquisition process.

LEX Markets:

The Securities Market for Commercial Real Estate

A platform offering investors the ability to freely buy and sell shares of institutional-quality cash-flowing real estate on a transparent and regulated securities market.

Otso:

Revolutionizing the way commercial leases are securitized for Tenants, Landlords and Brokers

A platform that assesses the creditworthiness of prospective tenants while reducing the risk of leasing for landlords and freeing up significant liquidity for businesses.

Parafin:

Feasibility in minutes, not months

A platform that generates and evaluates millions of potential building designs, budgets, and investment models in seconds.

ProDeal:

Close Your Deals On Time, Every Time

An award winning software platform built to help lenders, borrowers and their outside counsel to close commercial real estate deals on time, every time.

Remarkably:

Marketing Intelligence for Multifamily Operators

A powerful marketing business intelligence platform for multifamily teams that need to stay on top of marketing and leasing performance issues, risks and opportunities.

Valcre:

The premier appraisal platform for the commercial real estate industry

A premier end-to-end appraisal software solution for the commercial real estate industry, empowering users with a more organized, efficient and intelligent path to produce and present their work.