How we're about to break Real Estate (on purpose)
The most disruptive thing in real estate isn't removing humans - it's knowing exactly when to keep them.
Last week, a venture capitalist pitched me on their thesis: "Real estate is the last trillion-dollar industry waiting to be disrupted by efficiency."
I couldn't help but think about the $170 billion that flows through US real estate commissions annually - that's 0.6% of America's entire GDP. Add in title insurance, property management, appraisals, and the countless other "inefficiencies," and you're looking at over $300 billion in annual friction costs.
Silicon Valley sees waste. I see 1.9 million paychecks.
What if real estate's inefficiencies aren't bugs to be fixed, but features that serve a purpose?
What if the race to eliminate friction doesn't save that trillion dollars, but simply hands it to a handful of tech giants?
The evidence is already here. We just need to look.
šš¼ Hello! Iām Zakee. I write about stuff in real estate that excites me. I also create and giveaway resources that I couldnāt find anywhere else.
The $300 Billion Secret Everyone Knows
Follow the Money (If You Can)
The real estate lifecycle is inefficient. Everyone agrees on that:
Real estate commissions: $170 billion annually at 5.5% average (compare that to less than 2% in the UK, Netherlands, or Singapore)
Title insurance: A $57.2 billion market where 87% is controlled by just 4 companies, despite claims rates below 5%
Property management: $20-40 billion, skimming 8-12% off every rental payment
Appraisals: An $11.9 billion industry that essentially puts a price on putting a price on things
Home inspections: $4.5 billion for what often amounts to a checklist and a flashlight
But here's what the disruption evangelists miss: 1.9 million Americans wake up every morning and go to work in this friction economy. That numbers bigger than the amount of employees at Amazon, Apple, Google, and Microsoft combined.
The Art of Being in the Way
The genius of real estate's inefficiency isn't accidental - it's architectural.
Consider the "pocket listing" phenomenon. These off-market deals, whispered between agents over cocktails and country club lunches, represent billions in transaction value that never hits listing sites.
In any other industry, this would be called market manipulation. In real estate, it's called Tuesday.
The US charges 3x higher commissions than most developed nations. Why? Because the entire ecosystem depends on that premium.
When Silicon Valley Came to Town
The Algorithm That Couldn't
Remember when platforms like Zillow were going to revolutionise home buying with AI?
Their Offers program was supposed to be the future - algorithms would price homes perfectly, eliminate haggling, and make transactions instant.
Reality had other plans.
In November 2021, Zillow announced a $540 million loss, shut down the entire division, and laid off 2,000 employees. Their algorithm, it turned out, couldn't handle the messy reality of actual houses with actual problems in actual neighborhoods.
Opendoor fared slightly better - they only lost $275 million in 2023, down from $1.4 billion in 2022.
Progress?
The PropTech funding environment tells the real story: a 79% collapse from Q1 2022 ($7.44 billion) to Q1 2024 ($1.49 billion). Investors learned what real estate professionals have always known: houses aren't stocks, and neighbourhoods aren't spreadsheets.
We've Seen This Movie Before
The pattern is predictable:
Technology identifies "inefficient" industry
VC money floods in to "fix" it
Incumbents are declared dead
Reality reasserts itself
Value concentrates in 2-3 platforms
Everyone else disappears
Travel agents saw a 70% job reduction between 2000 and 2021. But here's the twist - luxury travel agents are thriving.
When Expedia commoditised the bottom, the top became more valuable.
Newspaper classifieds collapsed from $49 billion to $26 billion in a decade. That value didn't disappear - it transferred to Craigslist, then to Facebook Marketplace. Thousands of local newspapers died so a few platforms could capture billions.
The Great Consolidation Nobody's Talking About
From Main Street to Wall Street
While everyone debates commission structures, a massive consolidation is happening in plain sight:
Zillow Group now controls 52% of all real estate web traffic (including Trulia and StreetEasy)
Four companies control 87% of the title insurance market
Compass is aggregating top agents with VC subsidies, growing market share 65 basis points year-over-year
The math is stark: 1,245,544 real estate professionals are being funnelled toward a handful of platforms. This isn't disruption - it's absorption.
Meet the New Boss, Same as the Old Boss
The promised efficiency isn't eliminating middlemen - it's replacing them with algorithms.
But algorithms need owners, and those owners are creating new forms of friction:
Platform lock-in: Once Zillow has your search history, listing alerts, and saved homes, switching costs skyrocket
Algorithmic complexity: Instead of negotiating with a human, you're now fighting an optimisation function you can't see or understand
The trust tax: New "verification services" and "security features" that cost just as much as the old friction, but with better branding
What If We're Solving the Wrong Problem?
In Defense of Inefficiency
Maybe real estate shouldn't be frictionless.
Friction serves purposes we don't acknowledge:
Speed bumps prevent bubbles: When transactions take 30-60 days, speculation becomes expensive
Human judgment matters: An algorithm doesn't know future undisclosed plans
Relationships have value: The agent who knows every house that's sold in the neighbourhood for 20 years carries institutional memory
Trust requires time: Would you buy a $500,000 asset with one click?
The Future Is Both/And, Not Either/Or
Honestly, everyone has strong opinions of where weāre headed with AI. But, I feel like whatever the scenario, this more or less will be true:
AI handles the truly routine: Document processing, scheduling, initial valuations (the 80% that's genuinely repetitive)
Humans retain high-stakes decisions: Final negotiations, complex situations, relationship management (the 20% where judgment matters)
New friction emerges by design: Cooling-off periods for algorithmic purchases, human verification for large transactions, relationship preservation tools
Placing Your Bets
Losers:
Pure middlemen with no unique value (the agent who just opens doors)
Geographic arbitrageurs (knowing about off-market deals isn't special when AI knows everything)
Traditional brokers who refuse to adapt (fighting technology instead of embracing it)
Winners:
Platform owners capturing the concentrated value (the next Zillow, but smarter)
Experience creators who thrive when transactions commoditise (concierge services, luxury specialists)
Hybrid operators combining tech efficiency with human trust (the agent with AI superpowers)
The Trillion Dollar Question
The trillion dollars in real estate friction won't vanish - it will merely change hands. From the 1.9 million people in the US currently earning a living in real estate to perhaps 10,000 people working at 5-10 dominant platforms. From local communities to coastal cities. From labor to capital.
Is that efficiency?
Technically, yes.
Is it progress?
That depends on whether you're holding the concentrated wealth or watching it concentrate elsewhere.
The real innovation in real estate isn't eliminating friction - it's identifying which friction serves a purpose. The winners won't be those who remove all barriers, but those who understand which barriers protect value and which destroy it.
The next time someone pitches you on "fixing" real estate's inefficiencies, ask them: Where does the $300 billion go? If they can't answer, they're not eliminating friction - they're just moving it upstream.
The most disruptive thing in real estate isn't removing humans - it's knowing exactly when to keep them.