Construction Tech Firms Begin Wading Into The Real Estate Renovation And Sales Markets

by Craig K. Collins

Like a shark that must always be moving forward, Silicon Valley’s venture capitalists, start-ups and tech giants are continually on the hunt for new industries to disrupt.

Having already devoured—either partially or fully—such sectors as retail, journalism, publishing, film, hospitality, and personal finance, to name a few, tech executives have begun to turn their sights on the homebuilding and construction industry.

They see the sector as hidebound, low-tech, and slow to adopt innovation and new technology. They also see a massive industry that comprises over 5% of the $20 trillion U.S. economy. And like the hungry sharks that they are, the denizens of Silicon Valley are confident that new, dynamic technology platforms can be deployed to disrupt the American homebuilding industry, and in the process, redirect large streams of revenue from traditional builders toward upstart tech firms.

2020 Predictions

With this in mind, the homebuilding industry watchers should keep an eye on the rise of online home renovation and sales platforms in 2020.

Here are a few of the players:

Zillow is a nifty place for consumers to go to check the real-time market value of their house, rental condo, or vacation home. The company has accomplished this by amassing huge troves of data about virtually every piece of real estate, neighborhood and metro area in the U.S. And what to do with those mountains of data? One of the company’s initiatives is Zillow Offers, a digital platform through which Zillow will instantly purchase a home from a seller at an agreed-upon price. Zillow will then send its own construction and renovation team to the property, spruce it up and sell it, presumably for a profit, thus providing homeowners a frictionless way to move from one property to another. This, essentially, is a form of real estate arbitrage. Seattle-based Zillow is able to do this because it has data that tells it exactly how much a property is worth, as well as the optimal amount and type of upgrades to make in order to maximize the resale value and profits. Zillow Offers is currently operating in 22 metro areas throughout the U.S., including Las Vegas, Phoenix, and Atlanta, among others. In December, the company officially began its Los Angeles operations and expects to roll out to locations such as Cincinnati, Oklahoma City, Jacksonville, and Tucson in the coming months.

Competitors in this space include venture-backed start-ups such as San Francisco-based Opendoor, which operates in 21 cities and has raised a whopping $1.6 billion in venture funding from such sources as SoftBank, Khosla Ventures and Lennar, the nation’s second-largest homebuilder.

Curbio is another rapidly expanding construction tech firm based in Washington, D.C. The company operates on the premise that it will come in, perform pre-sale upgrades and renovations to a home at no upfront cost to the homeowner. Upon the sale of the house, Curbio will recoup their construction costs and take their agreed-upon slice of profit. The company has completed  $11 million in venture funding and is embarking on a national rollout.

Other firms in the field include Knock ($400 million raised) and Perch ($250 million raised.)

While venture capitalists are betting billions that these upstarts can successfully disrupt large swaths of the real estate and construction industry, others aren’t so sure, noting that the building industry is stubbornly entrenched in time-worn business models. Further, they say, the industry is hyper-local, challenging to scale, and capital and labor-intensive.

“One of the biggest issues we see facing these firms is their ability to attract and retain talent,” says John Fitzpatrick, president of The Newport Group. “There is currently a severe shortage of both construction industry executives, as well as on-site project managers, superintendents, and builders. These new tech firms will be competing for talent against such established builders as D.R. Horton, Shea Homes, and KB Homes. It’s a talent pool that’s very different from the kind of knowledge worker these tech firms are used to hiring. That’s where an experienced construction recruiting firm like the Newport Group can really help.”

Some of the construction tech firms are trying to attract talent by attempting to bring Silicon Valley sensibilities to what has traditionally been more of a hard-hat, blue-collar industry.

One Los Angeles-area construction superintendent who last year jumped from a traditional production homebuilder to Zillow Offers explains: “Working for Zillow is a completely different experience. The company treats everyone really well. We have great benefits, including gym memberships, in-office food and snacks, a grocery allowance, bonuses, and stock options. There’s a big emphasis on company culture. They work hard to take care of you and make sure you don’t burn out. Many of my former colleagues at traditional builders have begun flocking over here as a result.”

If this new wave of construction tech firms succeeds, traditional homebuilders may find themselves further squeezed in their efforts to both retain their current workforce, as well as attract new pools of talent.

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We have over 50 cumulative years of hands-on experience in homebuilding, land, and commercial development. The Newport Group places all roles in the real estate and construction vertical. You’re dedicated to your practice—that makes two of us.

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Craig K. Collins is Sr. Director of Homebuilding and Construction for The Newport Group. He counts among his clients several Top 100 U.S. homebuilders, as well as a number of venture-backed construction tech firms. He invites you to connect with him on LinkedIn.