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The Redbud, “Customer Discovery Article Series,” is a collection of sound bites from boots-on-the-ground industry experts and our industry commentary into a 3–5 minute intuitive read. Check out our first series on tech with community banks here.
TLDR
The number of newly listed homes in the US is down 25.5% yearly, and inflation isn’t the only reason. Additionally, local issues in individual markets contribute to the decline in home listings across the United States. For this article, we interviewed a real estate professional with 20+ years of industry experience about current real estate issues and possible solutions.
Industry Expert: John Sprague
John Sprague, Mizzou alumni, used his expertise to shed light on the issues haunting the real estate industry today. John is a Real Estate Business Coach in the St. Louis area who works with Real Estate CEOs and Team Leaders across the Nation to develop leadership skills, team building, lead generation tools, system implementation, and wealth building. His teams collectively sold over $1B in real estate in 2021.
In 2022, the average home selling journey took 65–80 days to complete, with the home being on the market for 35 and closing documents and tasks taking an additional 30–45 days. The transaction’s numerous tedious tasks and costs burden participants on both sides of the deal. It’s not just the buyer and seller who experience pain but also the real estate agent or broker. With only 1.5M homes on the market, less than one home per agent is left to list. (Source)
Homeowner Journey of Selling a Home
Appraisal: Determining a value for your home by using a professional appraiser or online platform. This generally considers the property’s condition, surrounding listings, and geographic location. Current tech solutions: Inspectify allows sellers to quickly book a home inspection and receive a customized report to ease the appraisal process.
Cleaning and staging the home: Before putting a home on the market, it is essential to thoroughly clean and declutter the property. This may involve deep cleaning every room, organizing closets and storage spaces, and making minor repairs or touch-ups. Some sellers may also hire a professional stager to help them prepare their homes for showings. Current tech solutions: Oda Studio creates virtual staging photos, and goodhouse helps maintain a home from moving into prepping it for sale.
Handling paperwork: There is a significant amount of paperwork involved in selling a home, including sales contracts, disclosure documents, title documents, inspection reports, and closing documents. Reviewing and understanding all the paperwork carefully is essential to ensure the sale goes smoothly. Current tech solutions: Spruce provides “end-to-end” title and closing services for a more seamless digital closing experience.
Coordinating with professionals: The sale of a home often requires the involvement of real estate agents, attorneys, and home inspectors. Coordinating schedules and communicating with these individuals can be tedious to ensure that the sale process moves along efficiently. Current tech solutions: Instashowing allows agents to manage, approve, and set up touring agendas for their clients to simplify coordination.
Managing showings and open houses: Showing a home to potential buyers can be time-consuming and inconvenient, particularly if the seller has a busy schedule. It may be necessary to leave home during showings or open houses, which can disrupt the seller’s daily routine. Current tech solutions: Zenlist is a collaborative home-searching platform allowing RE agents to communicate with clients and plan tours accordingly.
Negotiating the sale: The negotiation process can be tedious, as it involves a lot of back-and-forth communication and the need to make compromises. It can be challenging to reach an agreement that satisfies both the buyer and the seller. Current tech solutions: HouseCanary provides software and services for all parties for real-time home valuations.
Real Estate Agent Journey of Selling Homes
Marketing and lead generation: Real estate agents typically generate leads through various methods, including online advertising, social media marketing, networking, and traditional marketing techniques such as flyers and postcards. They may also use their personal and professional connections to generate leads. Current tech solutions: Doorsey allows RE agents to integrate a commerce solution directly within their website, allowing buyers to make offers more seamlessly.
Qualifying leads: Once an agent has generated a lead, they will assess the lead’s readiness to buy or sell a home. This may involve asking questions about the lead’s budget, timing, and motivation for buying or selling. Current tech solutions: Perchwell provides real-time market insights and easy communication with clients on the go.
Showing properties: If the lead is interested in buying a home, the agent will show them properties that match their criteria. If the lead is interested in selling a home, the agent will assess the property and provide recommendations for preparing it for sale. Current tech solutions: Brivity is the all-in-one real estate CRM that keeps agents updated on leads, provides real-time insights on buyers and allows easy communication directly from the CRM.
Negotiating and closing the sale: Once the lead has found a property they are interested in buying or selling, the agent will help them negotiate the terms of the sale and assist with the closing process. This may involve coordinating with lenders, attorneys, and other professionals in person to ensure a smooth transaction. It is not unusual for these meetings to be aggressive and stressful. Current tech solutions: Opendoor is an online home-selling platform that allows sellers to skip the hassles of the home-selling process.
Providing ongoing support: After the sale is complete, the agent may continue to support the client, such as helping them find contractors or other service providers or answering questions about their new home. Current tech solutions: Thumbtack is a platform providing real-time insights on real estate services near the user.
According to John, the number one reason for listing cancellation is a lack of communication between the Realtor and the seller. This is because Realtors tend to place their opinions within the decision-making process. It is thought that roughly 70% of realtors of the 1.6M have not needed to have a proper pricing conversation with their clients due to market conditions, per John. The skill of a fiduciary shines through as they seek to understand the client’s underlying motivation, educate the client of their options, provide them perspective, and ask questions to empower them to make the best decisions for themselves and their families.
The longer a listing stays on the market, the greater the risk of losing buyer urgency; the notion that the home won’t be there tomorrow compels the buyer to write an offer. As time on the market builds, the question “Why is it still on the market?” applies more pressure on the seller to make an even greater price improvement to have the same effect of attracting an agreeable offer as a more minor, more timely price improvement.
“The opinions of the real estate professional don’t matter. They are unprofessional and dangerous,” said John
In the absence of data & the perspective of that data, sellers are left to rely on blind faith in the realtor’s opinions, which are oftentimes based on a sample size too small to be relevant. This puts the seller in a position to make critical decisions based on emotion instead of evidence, costing them tens of thousands of dollars. However, when the seller works with a real estate professional that understands that a fiduciary’s responsibility is to provide their clients with a perspective of all the relevant evidence, unsurprisingly, they tend to make better decisions around the sale of their home that are in alignment with what they desire. Consistent lead generation and the habits around those activities have also been cited as the single greatest challenge for the real estate professional. First, as a person gets deeper into the sales process for one property and gets tied up in the tedious nature of closing the sale, they may spend less time generating leads. Second, it is hard to find those truly wanting to sell their house. It tends to be easier to do cold calls or provide cash offers because finding the sellers actively raising their hands, and wanting to sell their house, can be difficult.
Miscommunication and lack of lead generation, among other contributors, are significant factors in the liquidity issue in real estate markets today. Homeowners’ lack of data leads to miscommunication, which results in Real Estate professionals adjusting listing prices of homes on an opinionated basis. Since there aren’t enough houses on the market already, the lack of lead generation causes a shortage of new listings, which further contributes to the uncertainty of the markets. Supply chain issues and increases in construction costs are also leading to the lack of new listings. You’d think demand would keep up with a short supply of listings, but buyers are remaining on the sidelines due to the increase in mortgage rates.
In 2022, a seller’s market most of the year led to a rise in bidding wars and high asking prices. The Fed made it easy to borrow money, keeping interest rates low during the pandemic to help stimulate the economy. This increased demand for property drove home prices even higher, further fueling a supply shortage, which has continued into today’s markets. As the Federal Funds Rate is levering up aggressively, homes are becoming more expensive to acquire. According to the National Association of Realtors, U.S. existing-home sales declined 7.7% in November from the prior month and 35.4% from a year earlier (MarketWatch). The ongoing shortage in existing homes and the 20-year high mortgage rates have made the market very difficult for buyers. Over the last twelve months in the US, the number of days a home is for sale has risen from 15 to 37 days, and the percent of homes sold over list price is down 18% to 26.3%. In addition, 21.2% of homes have had a price drop up from 11.2% last year. John is expecting at least a 20% decline in the number of homes sold in 2023. (Redfin)
“Figure out the liquidity issue,” said John.
According to the Wall Street Journal, Single-family construction held above a 1 million rate from July 2020 through June 2022, which is the longest stretch since the runup to the 2007 housing bust. On a more monthly basis, the Commerce Department said ‘single-family starts’ dropped 4% in November. Due to construction costs and other factors, the lack of newly constructed homes further contributes to the liquidity issue dragging the real estate markets even lower.
Solutions to miscommunication, lead generation, and the other pains highlighted above have yet to be addressed on a wide scale. In the short term, miscommunication and lead generation can be dealt with by improving professionalism in the RE agent industry. As well as proper tracking of client behavior, leading indicators, client conversion rates and more.
Although there hasn’t been an industry-changing solution for any of these pain points, we are very excited about the possibilities and ideas for new technologies we’ve heard from John (highlighted below).
Lead Generation: The root issues with lead generation for agents are i) obtaining qualified leads and then knowing how to move them through the pipeline with various touch points and ii) liquidity for either building or buying. This could be solved via a simple CRM that helps agents monitor and communicate with potential sellers. This could also include educational tools for the many agents who have never had proper training. For liquidity with buying, a solution could be a platform that serves as an aggregate for people to give sellers cash offers on their homes online and the ability to partner with institutional and local investors. This platform could serve as an on-ramp for potential sellers who don’t have the means or know-how to begin the home selling process, potentially fixing the shortage issue. This would allow them to connect with professionals who can make a margin by buying quickly, adding quick improvements, and then selling the home. Some companies are pioneering creative financing solutions, e.g., Homeward gives buyers the liquidity to buy before selling or making cash offers, and ClosingCostHelp finances closing costs for VA mortgages.
Supply: There will always be an undersupply of housing unless potential buyers or developers are appropriately incentivized to build homes. In a market flourishing with capital, one would assume obtaining a construction loan is an easy task, but few lenders offer them due to their high risk and complexity. There are risks associated with materials and labor pricing and the timeline to finishing the home. A suggestion could be a digital banking syndicate with relationships with materials suppliers, home builders, and architects (e.g., FRANK has streamlined the home design and blueprints process) to lower the costs and risks of homebuilding. Creative financing options could include KPIs for the homebuilder and co-signing the loan to align the incentives.
Miscommunication: Getting information on the health of a listing for a seller is essential to reduce the number of cancellations and mispricing in the markets. Using leading indicators such as the number of listings in the area or local median salary as data points and offering this to home-sellers could dramatically improve the miscommunication problem in the industry. Appraisals need to consider more than what other homes have been priced at or sold for and the agent’s or seller’s gut feeling. It could also help to digitize the original blueprints of the home, which currently sit in local public official offices.
Conclusion There have been promising innovations in residential real estate transactions, but society is still far from making a material impact. For agents, the most significant pains are obtaining a solid deal flow or taking advantage of the deal flow you receive. The pain for sellers and buyers is the long closing and negotiating process. We are only at the brink of forging innovation within the multi-trillion dollar real estate industry as only $75 billion of venture capital has been invested in proptech thus far.
Redbud VC is an early-stage venture capital fund and studio investing monetary and social capital in early-stage tech founders.
Reach out to Brett Calhoun, Managing Director & GP at Redbud VC, at brett@redbud.vc to learn about Redbud, and subscribe to our newsletter here.
Co-Authored by Brett Calhoun and Yahav Sal!
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