Imagining that Amazon will enter the residential real estate business at some point in the not too distant future isn’t that big of a stretch. After all, as one of the five FAANG stocks, the company is the second largest employer in the U.S.
Amazon’s nearly $178 billion in annual sales revenue already comes from diverse subsidiaries such as:
- Amazon Books
- Alexa Internet
- Amazon Web Services
- Amazon Robotics
- Amazon Studios
- Goodreads
- Whole Foods Market
- Zappos
So why wouldn’t helping people buy and sell their home be the next logical step?
Along with health care, the real estate industry is one that is ripe for disruption. A recent article in Inc. notes that not a whole lot has changed in the real estate business in the past 50 years.
But while real estate agents may be happy with the status-quo, consumers are more than ready for a change. That’s why investments in real estate tech startups reached an all-time high last year, according to Inc.
Even though over 50% of home buyers found their home online, nearly 90% still used a traditional real estate agent as part of the transaction. That’s a lot of money in sales commissions buyers and sellers are spending that could very likely be put to better use.
Any company that can simplify the process of buying and selling a home by incorporating artificial intelligence, consolidating publicly-available data, and streamlining the paperwork process will massively disrupt the real estate business.
In fact, that’s already beginning to occur.
We recently wrote about Zillow entering the home flipping business in Phoenix and Las Vegas. The company is making all-cash offers to buy homes, then updating and reselling within a 90-day period.
But home flipping is a very cyclical niche, one that grows as the market nears its top.
This is something that a data-rich company like Zillow is surely aware of. It’s more likely that Zillow is simply testing the process of buying and selling homes online before expanding beyond the fix-and-flip niche to the general home sales market.
Turning empty space into revenue is another area where technology is rapidly changing the real estate industry.
Founded only nine years ago, Airbnb has grown from couch surfing in New York and San Francisco to having a presence in nearly every country in the world. Airbnb consolidated the fragmented vacation and short-term rental markets by putting guests and hosts together online. Last year the company generated $2.6 billion in revenue.
Now, back to Amazon.
Forbes cites three reasons why Amazon is so powerful. In addition to the company’s share of retail, Amazon has reached such a significant scale through automation that it is able to shift bargaining power to the consumer and – despite being the second-largest employer in the U.S. – has been able to drive down wages and inflation.
As Forbes notes, “If Amazon could add housing, health care, and higher education to its stable of services, concerns about inflation might be extinguished.”
In the real estate business, lower wages means buyers and sellers spend less on sales commissions, while driving down inflation means lower home prices.
In fact, it appears that Amazon is already testing the residential real estate market. The Information, a website that writes about the technology industry, notes that Amazon is considering offering home insurance to complement its Alexa, robotics, and smart home devices.
Which makes us wonder how long it will be before we see ‘Amazon Homes’ on the ‘for sale’ sign in our neighbor’s front yard.
Sources:
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