Transcription
Real quick, uh, this MIT Club event, co-sponsored with the MIT Center for Real Estate as well. We got Steve Weickel there; he'll tell you about that. And as with all of our events, they're volunteer-driven. So if you guys want to get behind an event like this, like Nick Jones did a great job organizing this panel, we want some more folks out there. Who we got? We got a calendar to fill up for 2021, so let's do it.
The event ends at one; we'll end off the recording, and then we'll have some informal Q&A. We'll continue kind of like breakout, sort of style, where if you have other questions you want to ask, feel free to stick around, but we will do a firm end on the hour. Jake, I'll let you introduce yourself.
Uh, Jake said, and uh, take it from here. Thank you.
Uh, yes. Uh, Jake said, founder of Stone Bridge Ventures. Um, first, uh, got involved in proptech in 2011, where I wrote a business plan for a two-sided marketplace for real estate transactions that eventually became Auction.com, 10x.com. Um, man, we'll be able to tell you more about that. Uh, since Auction.com and 10x.com, I've actually been focused as an investor. I've done a lot in the proptech space uh, with companies like Opendoor, Blend, Qualia, States Title, Roofstock, a digital brokerage called Side, and others that you might be aware of. You know, I thought in 2011 we were going to see this transformation of real estate going from offline to online, but I didn't realize how fast that digital transformation would happen. I think we're really in the eye of the storm in terms of tremendous activity and tremendous opportunity, and I think we have a great panel here to talk about that. Uh, so with that, um, I'll let each of the panelists uh, tell you a little bit about themselves and a little bit about their company, just so everybody has context. Um, and then we'll go into some questions. I'll start by asking questions, and then I'll ask uh, uh, you and the audience to submit questions through the the chat. Uh, let's start with uh, Mark. Uh, you're the the first on my right. Uh, why don't you uh, introduce yourself and your company.
Great. So, uh, it's a pleasure to be here, thanks Jake, and pleasure to be uh, speaking with everybody. I'm Mark Tamerson, founder of Homerun IQ, and Homerun IQ is a modern financial platform for community associations. And that's a key segment of the residential market. If you've ever heard of condos, townhomes, planned developments, and so forth. And basically, as a financial platform and financial tools, our goal is to save time and money, provide new benefits, and improve the total financials for associations and support the entire value chain to do so.
Great. Uh, Min, everyone. It's great to be joining you. Uh, thank you for uh, joining this discussion. It's obviously something that we're all very passionate about. Like Jake mentioned, I'm the general manager and CEO of Auction.com. So if you haven't checked us out, please check us out, download our app. We are driving residential sales. Any given year, we'll have about 70,000 single fam residential single-family assets on our platform. So um, annually, if the country, we're selling six million, we t we do touch um, maybe over one percent of that, um, which is quite large, um, given how disaggregated the market is. But with six million-plus account holders, um, we're really working to drive access, transparency, um, and quality in in online residential transactions. Fun fact, um, I am a licensed Massachusetts broker and a general contractor, but I haven't done this in the trade. Uh, yeah, if people need uh, you've got a good contact now.
Okay. Uh, Steve, please.
Yeah, thanks Jake. Uh, my name's Steve Weickel. I'm the head of industry relations for the MIT Center for Real Estate. We're thrilled to be a co-sponsor on this. Thanks so much for including us, and thank you also to all of my fellow mesoret alums who are out there uh, joining us today. I saw the list; good to see all of you, and and hope that we'll see um, frankly, all of our MIT friends and family uh, in person soon when we start traveling again. Um, I do wear a second hat at the center. Uh, about nine, about 2011, 2012, we started looking at some alums started looking at this thing called real estate technology. It wasn't even called proptech yet, and we started doing a breakfast here in Boston in 2014, and that grew into a whole program that now is folded into our real estate innovation lab. So one of the other things that I do at the center is I work with that small team that's trying to understand proptech, how it continues to grow, how it unfolds, how it's impacting our our industry, how it's frankly reinventing large areas of our industry, and and glad to talk about that as along with the group later today. So thank you.
Great. Great. So, uh, first question, let me address it to Min. I mean, you know, one of the things that I always felt uh, was a power in the Auction.com model is you're at the center of the transaction, and so you get the chance to really see a lot of what's being addressed um, in real estate, what's not being addressed, where the holes are, where things have to be done manually. We'd love to get your perspective on those two areas: what you see is really kind of well-addressed and interesting innovation, but also where the innovation needs to happen and you're not seeing it yet.
No, absolutely. And I actually think that's probably a key interest for many of the leaders here who are driving new innovation um, for the future. Um, so you know, at Auction, uh, we're very unlike Zillow. So most of the time, um, you know, companies will ask, well, how are you different? We actually transact on the site. And so when you have a marketplace where you can um, like eBay, that's probably the most um, analogous, um, so you bid actively, and then you win, and you have a contract that's pushed to you, and so you sign the contract, and then you monitor your closing. So you actually consummate the transaction on the site. And so in terms of a value proposition, the amount of proprietary transaction data that results from owning the transaction, this is really what allows us to create more innovation and technology with the user insights. Um, something our evolution um, in real estate technology, I feel we're still in such early stages. Um, you know, someone had, you know, asked like what, where are we in an inning for real estate technology? And I think where we are, we're just getting our feet wet. Um, so really a lot of push with Zillow, the search, any of the broader um, research, search, somewhat due diligence. You know, now those challenges are being addressed or have been addressed very well, and then now we're pushing toward some of the harder one-off, uh, more detailed um, transaction components that require local-level knowledge, local-level licensing, local-level regulations. And so this is the spectrum that we're moving into. I think the search, finding a broker, figuring out how transactions work through a broker if you are using a broker, um, being able to engage online, most of those opportunities we can find online, but now from the transaction through funding, finding funding, finding um, services for post-transaction repair services, renovation services, title and closing, this is the spectrum that I feel has not been addressed because of the complexity depending on region.
Great. And and Mark, you know, you've decided to tackle an interesting uh, sector within uh, proptech. Um, you're looking at the associations. One of the the theses I've had in proptech and fintech investing is that there's two opportunities: there's an opportunity to be a disruptor; there's an opportunity what I call an anti-disrupter. So, for example, one company that I'm invested in, Blend, is very much an anti-disrupter, helping the traditional industry not get disrupted, helping them go through digital transformation. Uh, you have companies, you know, where I'm not invested like so far that are trying to disrupt those same mortgage companies. You've taken the approach of really being an anti-disrupter, that you're building really vertical software and tools to help the traditional associations do their job better. Why did you pick the anti-disrupter path versus saying, hey, look, I'm going to build a next-generation uh, association management company that's going to be fully digital and take the disrupter path? Why are you the so why are you the Blend and not the SoFi?
Well, I would say that uh, well, there's a couple ways of how to think of it, and I think when you talk about disruptor and anti-disrupter, I might have a different way of thinking about it as well. When you look at the market, there's a, you know, first you have to take a step back in terms of what is the what is the problem you're going after. And so if you think about it in a lot of respects, the market that we're going after has certain governments, regulations, and fiduciary obligations that you have to meet. So those are in the hands of individuals. Now, if I were to put in context for this particular market, uh, you know, the if you look at the residential market, you have a bunch of volunteers that are typically board members that are responsible for 18 million dollar assets; they're the legal entity that's required to to take care of them, but these are volunteers, and they don't have the tools to do so. So you have to also acknowledge the way the system works and also the way that the uh, the scale and the go-to-market takes place. So I would frame the question a little bit less as this is a disruptor or an anti-disrupter, uh, but more in terms of how's the best way to solve the problem. Now, there are some companies that are trying to, and if I were to take a step back from the, you know, the broader question is how do you frame the proptech market? There's things that you could do disruption in, and there are areas that you could do anti-disruption, or I would say it's a different value proposition. So, for example, there are people to I think Min's point are trying to do things where they're trying to disrupt brokers and realtors. Now, the question is, is that really a market that you can disrupt, or can you be an anti-disrupter and be smart in terms of workflow management and say, where do I bring the talent to the point where the spirit where it needs the most, the most impact, and how do I take away the mundane? And then you have a channel and a group in an army of people that are wanting to work with you versus feeling threatened by you.
Um, Steve, you know, Min's background is focused on single-family, um, uh, Homerun and Mark focused on, you know, residential as well. You're also the CRE tech lead um, at MIT. Tell us what you see in terms of areas of innovation and CRE, uh, areas where you're not seeing innovation but you think we should be seeing, areas of innovation for in the in the commercial real estate space.
Uh, thanks Jake. See, to put it in context, when we started those breakfasts back in 13-14, there were 12 startups on my list of speakers. Uh, it was some of the usual suspects; it was VTS and Compstak and LiquidSpace, and the those companies are still around, and now um, our research list of startups globally is 3500, 4000, but I've seen lists as as high as seven, eight, ten thousand startups. So there are there are young companies, and some of those are kind of early stage, you might call them early stage or late stage; they're not all technically startups, but they are all taking a look at different parts of our ecosystem and trying to to do more, better, faster. Some of it is evolutionary; some of it some of it is revolutionary. And I think early on it was easier to identify what proptech was. So there's convergence going on in a as this has evolved over the last eight years. There's convergence happening in two ways that I'll that I'll point out that might help it; it might be easier to get your head around because if this is huge and and billions and billions of dollars of BC. So, um, one way is to look at the convergence of of the proptech is overlapping with construction tech, is overlapping with fintech, and there are these areas on the Venn diagram where companies, for example, Homerun IQ and and and and Min with Auction, you you could say, yeah, it's real estate tech, but it's also a fintech, and it's also other kinds of tech. So that's converging over time, which makes it harder to understand a little bit. And then also there is some convergence into platforms, as Min was pointing out, this end-to-end solution. For so long, these were single-point solutions that solved one specific problem, like search: how do I search? Except now it's the whole process is getting digitized and integrated. So I think that's where we are in the evolution, but it's still quite early. Uh, still quite early, but but this is these are two kinds of convergence that are going on that we're seeing. And Jake, I didn't really answer your question about what are what are we missing? Where's the white space? There's less and less white space. There was a lot of white space early on, but I think there's less and less and less white space, and I don't know; I I would leave it to to Min and Mark and and to you, Jake, because you look at a lot of companies, uh, what is it that our industry is still doing the old way that really uh, I don't know, maybe appraisal is appraisal any different than it was? Maybe what do you think?
Man, I agree. I think um, more of the the traditional um, work, more tasking, like appraisals, um, do we feel confident that a local appraisal, uh, averaging a thousand dollars plus the value, the cost is so high for consumers? Have we not evolved with an ABM, hybrid data analytics, to be able to provide same, if not better quality? Um, and I think you know, some of these are the disruptions that will be forthcoming. I mean, there are lots of energy around, you know, the the valuation space because that does represent such high risk for any lender in mortgage and um, investors and homeowners. Um, I also think that um, the title and closing space is a is a big one. Um, you know, it sometimes I think about whether it's the disruption or the um, the anti-disruption, uh, and you know, the the question I like to ask is, well, why does that make sense? And it could be that a lot of these industries, it's just how it's always been done, and rather than trying to chip away at an iceberg, it's easy to say, oh, it's that's how, you know, we'll work around it. Um, and I actually think Homerun IQ is a big one. Uh, you know, when Mark and I first met and he told me about his company, of course it made sense: you have these big res, you know, multi-family complexes, um, you know, 500 500,000, maybe even a million of um, operating budget in a year managed by volunteers that would be the equivalent of one of us saying, hey, um, volunteer, do you want to manage my 401k? Like these are the types of things that don't make sense, and for us to think about how do we start chipping away to professionalize um, in a way that makes sense for the future. And I think that appraisals, title, um, work, um, right now, even all-cash transaction, why does it take 30, 45 days for a buyer to close? Um, because they're trying to figure out that easement that someone thought they had 10 years ago before the last buyer. Is it still an easement? I mean, so there are these risks, um, you know, that that will be addressed by technology, um, maybe it's blockchain, you know, maybe it's something else that we haven't thought about, um, but I think those two are the big ones.
Steve, I think I'll just add one more, Jake. I'll just add one more. Uh, risk profiling. We're still very we're just how do you profile risk? And let's take a look at climate, just to talk about a topic that's in the news a lot right now. We're just on the very beginning of using data and analytics and trying to tie that over to real estate and understand the climate impact on real estate. Now, some of some of that is techno-technical evolution, but some of that is kind of our environmental situation.
And let me uh, let me build on both your points, Min and Steve. I think very germane uh, in in many respects. And I think if we take a step back uh, for those who come at proptech, which again, to your point, Steve, is is is a confluence of mini Venn diagram over of an overlap, uh, if you think of it, um, you know, in many ways, specs, it's a very traditional industry, you know, construction tech, and it's a very human relationship industry, and then you're trying to bring the technology piece, which obviously has a different clock speed that's used to it. And so you can approach the market in one of two ways: you can look at it, and I think Min articulated well as as Jake and you, Steve, about if you look backwards and see what's broken, what's the workflow that exists today? I have to get an appraisal; I have to get lending; I have to get qualified; I have to go through the process with a realtor; I buy the property; then I have to manage the property, and so forth, and you go earlier to have to build the property, and then I have to redevelopment at the other end. That's the way the workflow has been defined today, and one of the things that's really going to define you, the the opportunities, one is: can you fix that value chain and where are those elements? But if you look forward, and I think Steve you're alluding to this, we're in a moment of significant societal and government regulatory and environmental change. The question is, where's the market going to be ending up? So, for example, is an appraisal a point-in-time activity that should be done only at point of sale to your point of risk and underwriting? I think a lot of the drivers are going to be coming under underwriting risk, and frankly, the underwriters are driving a lot of things in the mortgage in the regulatory and in the insurance companies. So there's going to be a big play for the real estate, the underwriting risk, the financing, and then the social norms that are all going to mix together that I think are going to make a lot of interesting opportunities. And again, a very dynamic society means a lot of dynamic opportunities for how people are going to want to think about home buying, where they're going to live, where they're going to work, where they're going to spend their time, because again, if we take a step back, real estate is infrastructure; it's personal infrastructure, and it's where we live, work, and stay. Let's make sure that as these societal changes are happening, we take advantage of that, and that's where I think a lot of our opportunities are going to be in the next few innings of this of this uh, of this industry.
That's great. Um, and something I want to touch on is we're calling this kind of innovation in proptech; we're using that very loose definition of what proptech is. Um, not to get into a semantics discussion, but in this case, it really, you know, so the audience knows, it's really anything that's touching you and around real estate. So really, you could have vertical SaaS companies in this bucket; you could have fintech companies in this bucket; you could have true proptech companies where they have a propco and opco. So we're keeping our definition wide for this discussion, uh, and not going to get into a semantics battle, just so people know. I think the other thing I I'd also highlight from what each of the panelists have said is, you know, when we think about these services, you take appraisal, for example, um, appraisal in the offline world versus appraisal in the online world means something very different, uh, for the very simple fact of you're creating structure around data. And so that's one of the things to think about for those in the audience and for panelists as you touch on other topics. And Min mentioned this, you know, with the Auction.com model, you know, it's not just the service to sell a home; it's building a platform that you actually get insights across a large number of transactions that allow you to do something that you cannot do in the traditional world. So as we talk about these different models, you know, I want the audience to think about that: that it's not just a better, faster, cheaper, which is part of it, but it is there are things you can do in the digital world that you could have never done in the offline world, and that's part of what creates the value I think you're seeing in the space.
Um, with that, I think there was a good um, uh, audience discussion, which is, you know, when you start really getting into, you know, uh, proptech, you know, whether it's local or national regulations, you know, there's a lot, right? And and, you know, this was I I I loved that actually when we were building the Auction.com model was, hey, this is a barrier to entry, you know, yes, it it creates certain friction, but you know what, it makes it hard for other people to do it. Um, how do you how do each of you unlike, you know, this to be a question for everybody, how do each of you think about dealing with the regulatory environment? Does that limit your scalability? And and is anything changing there? And how should the audience think about if they wanted to invest or start a company in the proptech space? How should they think about pros and cons around regulation? Um, Min, let's start with you.
I love this question, uh, because I totally agree with you; it's either a challenge or an opportunity. And I think for most folks, if you're thinking about the long-term strategy of any startup, any value that you want to add to real estate um, and bring a technology, a disruptive technology overlay to it, regulation is actually a moat; it is a very wide moat that you can create. Um, so you know, for us right now, I have um, Auction teams in 23 states. We do have offline and online auctions, and so online is a lot simpler. Uh, you know, most real estate transactions, you've got a state form; there are state um, processes that you can follow. Foreclosure auctions have a very different story, and so you do have to incorporate the nuances. But rather than be overwhelmed in paralysis by the complexity, I feel that most, even as quirky as some states can be, um, once you start getting familiar with it and extrapolating to the general, even the quirkiest regulations, you can still follow an 80-20 rule. And I think for especially if you're starting out in this space or if you have a tremendously great idea, um, rather than try to boil the ocean at one time, prove it in one area. If you have a proof of concept and you've mastered the regulations in this area, then add the next, and then add the next. I think one of the challenges of um, disruptive real estate technology is, you know, there are even a larger companies that try to go out nationally in one big bang; that is really tremendously difficult, especially if you have a boots-on-the-ground network you're also trying to manage to one standard. And so really appreciating the differences, being maniacal about compliance, and I do think that it is an enabler, but bite off small parts and master it, and then support it with technology, and then build as you go. I don't think there is ever a silver bullet in national real estate, especially for residential.
I I just add something to Min's comment before moving on, which is, you know, for those of you investing and building proptech companies, there's an opportunity for you to think about your legal department as a front-office function as opposed to a back-office function. And when you think about it as a front-office function and you make it a front-office function, you could attract some of the most strategic GCs, some of the best legal thinkers, because they're going to be part of the product; they're not just there to review documents for, you know, customers and again, back-office things; they could really be a strategic partner. And there's not that many jobs where in a startup, you know, the legal team can be a true strategic partner to the the core uh, uh, running of the business. So so again, along Min's lines, you know, you can really make the challenge an opportunity.
Um, Mark, uh, how about you? What's your experience in the space?
Well, I think uh, I think generally to build on Min, your comment, uh, I think regulation can be uh, a moat, and uh, it's certainly one that we look at in that way, uh, but I'd like to just take 10 seconds to define what we mean by regulation because there's regulation at the federal level, state, and local level, and the question is what are you affected by? And then I would parson to do buckets: what's good regulation and what's bad regulation? And in just from a philosophical perspective, I think a lot of things are intended to be good, but the ramifications are unfortunately negative. So the first thing is to understand what are the regulations that really apply to your sector and where, and to your point, Min, do you want to bite off all of it, or do you want to go step by step? And I think it's you're wise to go step by step because it can be very complicated. Um, but that being said, you know, we look at regulation as actually an asset in how we think about it because, frankly, a lot of the regulations that have been applied in the sector in particular we in is to try to set the min bar; it's the lowest common denominator to just keep people from getting into real trouble. We actually look to exceed regulations that we think make a lot of sense, and then we also look to in a way frame the bad regulations so that our system kind of prevents you from going down that path. So net-net, you know, we think regulations are an asset to us as a company; we look at that as certainly when we think of financial planning, there is regulatory environments to be considered in that. And lastly, what I would say is, look, if you're going into a regulated market, and to your point, I think if people come from technology, I think there's a there's a especially in the Valley, there's a mindset of like, let's blow up this, you know, let's ignore this regulation; let's just do our thing, and then they can catch up. Make friends with the regulators; get to know the people in the agencies; talk to the people because they have problems to solve. If your platform solves something for a regulator, an agency, that is a huge market enabler, and I would not lose sight of that.
You know, I think Mark makes a great point that, you know, this aspect of getting to know the regulator is very key, but also getting to know the regulator first before your competitor or person who doesn't want you to succeed gets to know the regulator is very important because the first person to paint the picture in their mind of what you do has an advantage; the next person to come after is at a disadvantage. So thinking about these regulations, taking a proactive approach to regulation, and engaging with regulators, so you're the first to shape their mind about what you do, you form a positive impression; they understand exactly what you do; and then anybody who comes after you that tries to, you know, um, attack the model, you know, the regulator has the facts before they have a chance to, you know, again, shape their opinion in mind. I think that, you know, uh, engagement, but also sequencing, is very critical. Um, and Jake, also, there there are kind of two, there are multiple angles on this. One solution could be a construction tech or build tech kind of solution where you're helping the contractor solve a problem, but that same thing in the hands of government is govtech. So this is the as I pointed to this this overlap uh, in the then diagram is is that it might look more like a civtech or govtech solution because you're helping the building department deal with it, or it might be a construction tech solution because you're helping contractors deal with permitting. So there are all these opportunities, and and to Min's point, they are very specific point solutions at first because you can't boil the ocean, but eventually they're going to merge, either intentionally or by default; it's going to get merged together. But I I these opportunities, we complain about regulation and the complexities, but there's an opportunity to help make those easier to navigate on all sides of the table.
And um, something that uh, also got touched on, you know, that I think is important to mention is, you know, and again, Min mentioned this, you know, how there's an offline component, online component. When we think about all these models, you know, um, that that really is going to be a important dimension for a lot of businesses and startups in the space as how to weave together online and offline. And you know, we've seen that in other places, right? Your Uber experience, 90% of that experience is offline, not the app; your Airbnb experience, 90% of that is offline, not the app. Um, and and so when we think about, you know, innovation in proptech, I mean, can you drill down into that a little bit more to talk about how you think about, you know, how do you weave together offline and online? How do you not make it be too siloed, but something that actually complements each other? For the pieces that just cannot go online.
You know, this is something um, that, you know, having been in online technologies for um, the past uh, over nine years, um, there's always a natural friction. And so you've got the online, sexy product team, slick technology, which is absolutely essential, and then you do have field teams, and they're viewed sometimes as disjointed: this is the sexy part with the technology, and then this is the non-sexy part, just processors or boots on the ground. I think the way that most successful companies should think about them are that they're actually one in the same; the technology can't look great if you're underserved by the back end, and then the back end can't scale at the same time if they're not keeping pace with the same investments as the front end. Um, one company that I am look, you know, I have been following closely is Opendoor, and so this is one where obviously very disruptive, um, very successful company, um, and the volume they speak for volume in terms of capture, but then recently I did look through, you know, where the offline may not be keeping up at the same paces. If you're losing eleven thousand dollars per property and you're totally scaled, so you've mastered the online experience, and you do have that volume for top line, when does the investment happen for the for the back end? And I think this is going to be a challenge, I mean, for any company of any size, um, but it's really viewing both parts as enablers; there isn't a hierarchy; one is not better than the other because they're actually intrinsically entwined. You can't be successful for the sexy tech if you don't have the back end. In real estate, it's a brick-and-mortar business at the end of the day, empowered by technology. So the slickness of it is really the two working together.
And if I could just build on what Min, you said, I I very well said, and uh, I I think and I would frame it a little bit also, Jake, as is instead of offline and online, I would say, you know, digital and analog, because there's so much of the real estate industry that if you if you come at it from a pure technology perspective, uh, you know, and just to give you some sense, I I came up more through traditional Silicon Valley, uh, where I came through technology and was very technology-forward, and then I bought into real estate, and when I bought my first condo, the down payment was more than the house I grew up in, and then you start to understand, you know, the value proposition of that, uh, the Min well articulated for what we solve, you run into this situation where you start to understand that this is a very analog problem in many cases. So if to make the online and the offline work or the digital and the analog work together, you have to understand that there's so many elements of it that are offline or analog, and there's elements that you still have to connect between the digital and the analog or the offline and the online because that's where the breakdown happens. And many times in in our sector, and I suspect Min in your case as well, there are people that are doing thing where you have zero visibility into the what is happening with regards to the offline world; there's zero information; you require a person, or you need some mechanical element to be captured and recorded, and that is part of the messiness actually of the data in real estate because either is still analog; a lot of people are doing things on paper, clipboards. And if you think about it from the technology perspective, everyone's on an app; there's a lot of digital exhaust that you can do great things; you don't even have that; you have a paper that's gone in the shredder that is that was your digital analog, you know. So uh, there's a lot of pieces to connect, not only the information but the workflow, and I think to your point, the value is that the interaction with the people that are on-site; that's where the bulk of the value is created; the technology needs to enable the value to be created at the point.
I want to shift to a different topic, which is, you know, we talked about how we're in the very early innings of proptech, and the definiti by definition, you don't have long-time croptech people; you have prop people, and you have tech people; you have real estate people, and you know, engineers and technologists who are coming from other industries. Um, each of you, you know, are see that, you know, uh, distinction, uh, let's start with Steve, but but then going to Min and Mark, you know, Steve, you're obviously here at MIT, which has one of the best real estate schools and one of the best computer science schools in the same place. You know, I know having been there, they're basically like two different universities; they're two different worlds, two different cultures. Um, you know, for each of you, would love to hear how you think about, you know, how do you have that balance between tech people and industry people? Um, do you have to make it 50-50? Does one need to take the lead and one follow? How do you make that work? How do you make the different cultures work? Um, Steve, start with you, and then Min and Mark.
So a couple of this is a great question. A couple of things early on, you could take a look; I I had a great example when I would when I would present this to folks;
Same, and I actually think that in the next two or three years, um, like even my company, which has an analog and a digital component, I mean the leaders will be one in the same. You can't be successful in real estate at this level without a deep understanding of technology. And even our technology folks, to be successful at this level, you need to have some background in how real estate works and the pain points, um, that sellers, buyers, stakeholders, and communities experience, um, so that they can apply the technical solutions at scale. And, you know, just to build on the comment, and we're in earlier stage and certainly men where you are with auction and so forth, and, uh, you know, when we look at it, I almost look at it as is is kind of the three sides of the equation. Uh, clearly you need, you know, the business side, uh, and so forth. Um, you need the real estate side, and you need the technology side.
The reason I call out the business side is that, um, real estate in particular, and when one of one of the core members of our of of the company comes from real estate, comes from a real estate family, has lived in commercial real estate, and so we rely heavily on that. And one of the things I would call out for people who aren't familiar with real estate, uh, all businesses is relationship-based in many ways, especially real estate, especially real estate. So when you say you need a real estate person, you don't need someone who understands real estate alone; you need someone who is connected in real estate, that is particularly helpful. And on the business side where things in the technology and the pieces meet, this is where you can get more interesting business models. And when you think of it, the appointment that you made, you might buy 1.7 to me, so one to two homes in a lifetime; that is not a high transaction; that's not a high-frequency rate. So if you're trying to make a business model on frequent on frequency and transaction, you're going to try to make a lot of money on one transaction and call it a day, and that you see that a lot in commercial real estate. But now as margins might get squeezed on the transaction, it's on services; it's the ongoing piece, and that's where technology enables. So if you can go from that analog point to you can create a digital touch point, and then the ongoing digital footprint and continuity, so you can connect the online and the offline, you get into subscription models, you get service models, you get in all the things that we've we've proven in the software in the technology world.
So I would say you want to bring in the real estate person for the the go-to-market, the channel, the connections in the relationships; the technology person; and then a business mindset to think, okay, how can we go and help monetize a model where technology can better serve? And I think that's where a lot of the innovation is going to happen, especially when you start talking about risk mitigation and underwriting and all those kinds of things; that's where those ongoing touch points will be very critical. Hey, Mark, I'll just add one: you you point out an interesting thing about velocity, to to to help those of you who, uh, who are listening in who who don't have a lot of involvement with real estate, commercial real estate; we make the distinction between residential real estate and commercial real estate, that generally speaking, commercial real estate: fewer transactions, higher margin; uh, residential real estate, in the grand scheme of things, more transactions, maybe not as big uh a margin, but then, um, what about all of the peripheral activities around that, say mortgages? We refinance our mortgages more than we more often than we buy houses and an office building, and we buy houses more often than we transact an office building. So I think if for those of you who are looking at this industry, there are those are very different business models because the margins and the velocity, uh, are very different depending upon which part of the ecosystem you're in. And you know, I'd, um, you know, amplify what Steve is saying that, you know, within this prop tech world, there's a lot of different business models, and so as you're thinking about what problem you're solving, you know, apply a business model test, that question of is it a good business model? You know, for me, you know, when I thought about, you know, doing something in prop tech, I viewed the two-sided marketplace, if you could get that going, as one of the best business models on the internet because you connect buyers and sellers, you get a large transaction fee, you know that's the Airbnb model, and we see how that's valued, but you know that's the eBay model, that's many other models, and that's what the internet does pretty well: connect buyers and sellers. But but apply that test, you know, whether you're a high-volume, you know, uh, low price or a lower volume, higher price, there's a lot of ways for it to make sense, but you want to make sure you test it, and it does make sense to result in a larger TAM and interesting enough gross margins.
Um, one of the things I want to shift to is COVID. You know, um, there's obviously been temporary, uh, things that have happened; we all believe we have a light at the end of the tunnel here. Um, I'd like each of you to talk about what long-term changes, challenges, and opportunities in prop tech you see as a result of COVID, assuming that, you know, uh, we'll all be out of this, uh, hopefully in the next 12 months or, you know, 16 months, you know, we'll be in a different space. Let's talk about what permanent changes we think come out of it and opportunities and challenges for people who are thinking about investing or starting companies in the space. Let's start with you. Yeah, I would say I mean we've seen big drastic changes, and it's really not anything new, but it was, um, for instance, um, you know, more so in the last 10 years, um, what is it now? 90 plus percent of buyers will initiate their own search, but they always usually, um, will contact a broker to go look at a house, to have open houses, and there's still been a lot of hand-holding, which is right for a segment of buyers. Over the last year, the appetite for more self-service, the appetite to be more self-directed, this is certainly accelerated in residential real estate. I mean, having to socially distance and define your own time or to be comfortable with detailed due diligence in an online, digital format; 3D virtual tours are exploding in our space. Before it was a nice, fun to have, um, and then now it's, you know, we have, um, contractors, you know, giving estimates through, um, digital tours, FaceTime-ing. I mean, very similar with property due diligence, uh, where, you know, most buyers, they feel very squeamish about, um, transacting on a property they haven't seen. Well, now what phase do you will would get you comfortable with what tools and resources? And so the opportunity for technology to address, um, these virtual, digital needs, I think that's that's tremendous for anyone who is looking into this space. Um, nothing I can't really think of anything negative other than, you know, some of the impact, you know, to local industries, you know, involved in real estate, but from an online, disruptive technology standpoint, I think this has really, um, brought society, you know, closer to where technologists want them to go.
Mark, well, I think, uh, you know, COVID and, uh, in, you know, just just to be mindful, um, uh, hopefully for people on the panel in and and and and extend the audience that you haven't been touched directly by this and someone you love, so just to put that out there, um, you know, if we think about COVID and we think about kind of the the situation, uh, there's a I think a couple trends that are that COVID kind of found itself in the middle of, which will be interesting to see how they how they play out. So there was a period of time where people said everyone's going to the cities, everyone's urbanizing; now some people have said, well, the prices of real estate were driving people from urban centers now to the second and tertiary cities. One of the things people have talked about is COVID accelerating that or not; it could be a temporary situation or backlash where COVID is moving people; it could be accelerating people who are saying it's time to buy, and I want to get out of the city. And then you combine that with the trend, which is again TBD, work from home, work remote. I don't know how many of us—I'm, you can see my virtual screen, but I'm at home, and it looks like everyone else probably is as well, uh, you know, it may define, you know, some people may say, look, this is great; I would love to work for my company and not have to commute, not have to go anywhere. So COVID in many respects may accelerate some of those things. I don't think the industry is going to go 100 percent and stay there; I think there's going to be more of a rotational, a a a hybrid, if you will, between people that are going to be more work at home and a little bit. So that has implications for the commercial real estate space, and I think the last thing that I'll say is, you know, I think COVID is going to define some new norms. Um, I don't think, you know, as soon as people get the vaccines, we basically taught people for a year and a half, maybe two years, of not to be near each other; that's going to change how space is laid out, how office space is construed, how restaurants, how uh big event venues. So there's going to be a lot of changes just on adapting the physical space and the physical plant to how we want to interact. So I think those three trends are the kind of the urbanization, uh, the work from home, and then how do we work in a post-COVID world or interact; those are going to change. But I'll say just one final point, at least from my perspective on the the residential and where we are in the in in the world, I'm in; our business is considered an essential service. So if you landed in that designation, which a lot of construction has as well, you are probably in a situation where COVID, unfortunately, was more of a of a slight pause and not a disruption.
Great, Steve. Uh, it's a great question, lots of answers. Um, two two observations: one is that just on the proptech front, the shift from uh nice to have to have to the have to have. So for those of you who are already in prop prop tech ventures, uh, either participating or investing, you will have noticed this shift, uh, to solutions that solve real problems, and those real problems that have been that either existed before COVID or were new to COVID. And so the nice-to-haves either had to pivot or probably won't get funding; they may or may not make it. So they have to haves, which could be touchless entry; it could be elevator elevator booking; you know, who we never talked about elevator booking before March last year. So, um, that's one thing on the proptech front, and I will say that the VCs are still very active in the space, but the again, those companies that are have to haves are getting more attention and also getting more funding. I'll speak to—let me talk about office—just the general—there was this general trend happening prior to COVID, which was space as a service; the uh the length of commitment on space, both not not only office but often on residential, all space was becoming more and more fluid, and the length of commitment was becoming shorter and shorter, and that got accelerated by COVID, partly out of the economic realities of owners deciding that they're not going to find a lot of 10-year leases with five-year renewals unless they're really lucky, so they're going to have to come up with new models. So I think any of you who are in real estate have already noticed it or should will notice it soon that there's pressure to create new business models to engage the people with the spaces, and that may be part, Mark, of the hybrid model; it may be the two two-in-one model, which is two days at home, two days at a co-working space in the suburb, one day at the downtown office at the head office in the CBD. That's going to dramatically change how we underwrite; it is going to change what we build and how we build it because now the use profiles are different. So, um, still undetermined how that will unfold, but I I think I'll leave it at that because there there this is a bigger conversation, but um, the change in proptech, the proptech landscape specifically, and then our relationship with how we use real estate, how humans interact with the built environment, will impact the owners, the operators, the managers.
Yeah, and I guess, um, you know, would build on that by also saying, you know, there's there are these effectively negative implications of of COVID long-term that aren't going to go away with a vaccine, that, you know, there really is, um, going to be a change in how people think about what rents they could get, um, you know, the occupancy of offices, retail, right, you know, the retail, you know, was declining because of the internet; you know, COVID, you know, hurt a lot of retailers, um, but what I would say is in those challenges, that's where the opportunities for innovation happen. You know, if you look at companies like Airbnb, remember they started with the idea that you're gonna sleep on a stranger's couch; well, that's pretty crazy until you think about, okay, if it's 2009, you got to pay your rent, you gotta pay your mortgage, you know what you're gonna start thinking about letting people stay on your couch, um, to help you pay the rent or pay the mortgage. You know, Uber, driving people around in your car, again, 2009, 2010, there's a lot of people that are saying, look, I can make additional money by driving people around in my car; I'm not using it to get to work. So uh, these dislocations really help jump-start uh opportunities for innovation, and again, you know, for for me in 2011 when I was looking at the real estate space, there was a massive dislocation in real estate, and I saw that as certainly a challenge for the industry, but also an opportunity to start, you know, getting people to think about buying and selling properties online, which, you know, seemed crazy at the time in 2011, but it was that dislocation that created a an openness and a need for people to think about doing things a new way. So I I would tell our audience that for everybody looking at COVID and seeing some of the challenges in commercial real estate or even residential, you can turn that around and say that's actually an opportunity to solve things in a new way, and you know what people need those new solutions.
Um, Jake, at the center, when we look at innovation, we try to anticipate what the new product types are going to be. So before before co-working was considered a product type, a specific product type, we were noticing the trend of this flexible work environment, and then at some point it tips over into being a product type. So uh, looking at a company, there's a company called Selina, which which provides uh uh places for the digital nomads to work all around the world, and so it's sort of a hospitality model, but it's sort of a short-term rental model, and so we'll see this mash-up of different—you—that the strict uses will no longer apply, and then there will be new businesses created; somebody will come up with a a a product that that satisfies the need of remote workers who don't who who have short-term commitments and all of the things that they need, but they won't be signing 12-month leases on this living place, wherever this place is, whether it's a kind of a co-living or a hotel, but they but it won't be 12-month; that model won't apply to that kind of consumer.
Great. Um, we're at five till. Um, I know Jason has some parting comments; my goal is to not run over, so with that, I'll let Jason, um, uh, lead us out and thank everybody, panelists, for their time. Yeah, thanks everybody for coming out. We're going to—we'll do a breakout after we stop the recording; some people will stick around; others will have to leave, but I did want to point out for you guys, uh, here's our here's here's the the listing here when you go to videos; this is where we we do the replays. So our FinTrack, we've done a number of—we have estate planning, we did a current state of real estate in San Francisco, and uh, just would love to get more events like this, so I want to thank Nick Jones for spearheading this and, uh, and again, if you guys want to learn more about the speakers, you can go in here and, you know, click click on their, uh, you know, click here and learn more about that. Jake's also a director in the MIT Club, so uh, so there you have it. So uh, thanks again, uh, get get involved, tell us, give us some feedback, and and stick around if you have more questions.