How Technology and Innovation is Disrupting Canada’s Real Estate Industry

In 2012 just under $300 million was invested in real estate technology. In 2015 that number increased to an estimated $1.5 billion according to venture capital database CB Insights.

That’s a lot of money and one might expect to see big disruptions in real estate as a result.

However, when you look behind the curtain the truth is that something quite different is occurring. I call this the separation of concerns. There’s a gap between what consumers want versus what brokers and agents want. The word disruption in real estate brings to mind futuristic economies where consumers can buy, sell and finance their dream home with a click of a button. It’s a happy stress-free place. One without lawsuits, commissions or full disclosure acts.

Yet very little of the money invested is going in that direction.

Instead it’s being invested in companies like Nestio, Compstak, and Cozy Services. These businesses provide efficiencies, data, and analytics to existing processes. “If you peel back to see what powers these third party sites like Zillow, Trulia, Realtor.com, it’s old school, antiquated systems – spreadsheets, shared drives, faxing listings over to the broker,” says Caren Maio, founder of New York-based Nestio. 

Even companies aiming to disrupt the traditional service-agent brokerage model like Redfin, Zoocasa, or HomeLight are still dependant on agents being central to the home purchase process.

In 2011 there was a sense within the real estate community that technology was going to provide real estate agents and brokerages competitive edges. I watched as agents on tradeshow floors rushed to the newest shiny bell and whistle that promised to set them apart. Real estate corporations like Century21 and Realty Executives led this race. They invested heavily into their internal marketing systems and tools to attract new agents to their firms. They promised agents that they didn’t need to invest in real estate websites or listing marketing tools, instead they could get the tools for free from their company.

It’s true that any conversation about Canadian real estate innovation requires mentioning its central MLS database. It’s one of the reasons disruption south of the border looks very different to the Canadian counterpart. Rogers Communications invested heavily in Zoocasa with the initial aim of taking on Realtor.ca. They wanted to provide consumers with a better listing search experience and more transparent information. So while MLS search site Trulia in the USA was acquired by competitor Zillow for $3.5 billion, according to The Globe And Mail, Zoocasa was “saved” by investors after being shut down by Rogers in July of last year. 

After changing their business model multiple times Rogers finally sold Zoocasa late last year to real estate brokerage Keller Williams. However, what re tech investors are discovering and what Rogers learned is that the biggest client in real estate is actually the agent. And for Canadian agents the problem of a centralized MLS was already solved.

However, there is a new challenge to Canadian real estate innovation. A much bigger one than bureaucracy, regulations or competition with real estate organizations. It’s the weak Canadian dollar.

The Canadian dollar does not bode well for the Canadian real estate technology industry. The reason is twofold.

Risk taking innovators considering solutions for the marketplace may well ignore Canada’s real estate problems. It is far more profitable to solve the ones just south of the border. The second problem is that Canadian real estate agents are cost-conscious. Speaking to agents across the country I’ve heard of Canadian agents dropping everything from their coaches in the U.S. to their CRMs and marketing providers. Most products charge in US dollars, so with the falling Canadian dollar the cost of solutions went up approximately 35% for Canadian agents.

Where does this leave the state of disruption in Canada’s real estate industry? While the US and Canadian real estate markets have significant differences, one similarity is that Realtors have emerged to stay. In the next few years the most successful companies will likely be involved in disrupting the inefficiencies that the humble agent cares most about.

This will include how they meet new clients, how they manage their business on-the-go and how they maintain their 6% commission rate.