The Evolution of Proptech

Auto-ordering construction materials. AI-based property evaluations. Crowdfunded real estate investing.

Property technology, more commonly known as proptech, has come a long way. In fact, according to a white paper on proptech from Bank Leumi USA, we’re in the “Proptech 3.0” phase and moving into 4.0.

Combining big data with innovative software applications — and more frequently with artificial intelligence — proptech companies have made lives easier for homebuyers and real estate investors alike. But how did we get here?

The Start of Proptech

If we’re seeing Proptech 3.0, what was 1.0?

First, we should look at the definition of the term. Proptech encompasses all of the technology and platforms that both consumers and real estate professionals use to do everything from buying and selling properties to researching and marketing properties. There is even overlap with financial technology (fintech), in that some proptech helps facilitate and streamline the financial aspects of real estate transactions and services.

So where does this all begin? According to some experts, proptech began in the 1980s. Personal computers, Microsoft Excel, and accounting software were starting to be used by the real estate industry. As more and more data was collected electronically, real estate investment analysis improved.

“Proptech originally started just like any other kind of tech branch, where people are trying to build technology solutions to generate more efficiencies and better yields,” said Tony Hernandez, Stoa’s product manager.

The next phase began in 2001. The internet was in widespread use and the Dot Com Bubble had recently hit its peak. While there wasn’t a mass migration of real estate listings to online sources, some firms did begin testing out the new digital landscape. However, this was limited to residential real estate.

Realtor walking in the city using proptech on her mobile phone.

Proptech and Big Data

By 2008, high-speed internet availability and advances in data storage technologies helped further advance property technology into its current state. There were also advances in back-end software integrations that allowed for more interconnectivity between sources of data.

Most importantly, consumers became more reliant than ever on the internet. This was a fact realized by many publications — many of which were sources of real estate listings — as they moved to web-based publishing to maintain readership. Real estate companies saw this and realized they, too, could move their listings online along with photos and, later, virtual tours.

Through all of this, the amount of data collected by these firms and proptech startups grew and grew.

“Originally, proptech started in the traditional real estate side of the house, as well as lending,” said Tony. “But a lot of these proptech companies have accidentally also become data companies.”

That data not only makes it possible for these companies to improve their offerings, but it also allows them to move into verticals that back up their core business or even create new ones.

That was the case with Stoa. The company originally started with the goal of being a hard-money lender that offered the most competitive rates. But in working with real estate investors, it was quickly realized that there was another area in which they needed even more help.

“Fix-and-flippers are great investors,” Tony said. “They’re great at finding homes, remodeling them quickly and efficiently, and getting them to market. But selling them on the market is not always within their expertise.”

Using collected data, Stoa knew what most real estate investment trusts were looking for in single-family rentals, so they were able to build a system in which they could provide a real estate investor with a hard-money loan, statement of work, and up-front purchase contract.

“That’s the evolution of not just Stoa, but other proptech companies as well,” Tony said. “These companies look to solve problems and as they progress, they collect data and learn and sometimes, quite often in fact, the models will change. In fact, we’ve seen a lot of these startups in the proptech space change significantly over time.”

"A lot of these proptech companies have accidentally also become data companies.”

Proptech’s Past Is Accelerating Its Future

Now we’re at a state in which nearly all aspects of real estate rely on technology, both residential and commercial. Whether it’s property management software, digital brokers, construction financing, or the sharing economy, you would find it difficult to make a move in real estate without the use of proptech.

But it’s also becoming increasingly difficult to find a proptech company that isn’t in some way using or combining data and software with other proptech companies.

In years past, companies had to collect data themselves, whether that was consumer data or market analytics or even testing new solutions. But big tech companies such as Meta and Google showed that data could be even more lucrative than the tech solution itself.

“Some of these proptech companies realized the value of centralizing data sets or even monetizing their own data sets,” Tony explained. “They’ve built services that allow other proptech companies to accelerate their go-to-market strategies.”

This is even the case for companies that were not traditionally in proptech. For example, in 2021 The Home Depot partnered with Buildertrend, a construction management software company. This partnership allows homebuilders, real estate investors, and contractors to not only order from The Home Depot, but also to connect those orders to ongoing projects to better track expenditures.

As more and more proptech startups appear with new solutions, it won’t be long before we see more partnerships like this as well as bigger companies buying them up and integrating their IP to create even more robust offerings. Think Meta buying Oculus, WhatsApp, and Instagram, among others.

The Future of Proptech

What does the future hold for property technology?

In Bank Leumi USA’s white paper, they state that “Proptech 4.0 will be unified by two key themes: sustainability and cybersecurity.”

In regards to the latter, as the lines between the physical and digital worlds become more blurred, the need for stronger security measures will increase. That could apply to anything from smart home devices to AI that evaluates properties based on photos and videos.

When it comes to sustainability, companies will be looking to provide solutions to fix-and-flip investors and homebuilders as new laws and regulations meant to deal with climate change are passed. This future technology could offer solutions that help contractors find materials that are sustainably sourced or help homebuilders create more eco-friendly houses.

But if the last few years are any indication, the future of proptech may lie in solutions to problems we haven’t yet thought of. Thankfully there’s always someone ready to take on the challenge.

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