Millennials: A Disruptive New Force in the Home-Buying Market
This is the first in a series of posts from the University of San Diego, in the run-up to MIPIM 2020. Enjoy!
With average US incomes of $88,200, they can finally afford housing. This generation makes up 36% of the home-purchasing market, making them the largest generation buying homes today, and for years to come. Millennials may drive changes in the home buying process.
Millennials are notorious for favouring experiences over material wealth, and this sentiment comes across in their home-buying tendencies. Rather than spending time touring homes with a Realtor or going to open houses, Millennials want to minimize time spent searching, and thus are finding their homes through app-based services. Just this year, 81% of millennials initiated the purchase of their new homes through a mobile app. This shift in the home-buying process will completely change the way realty works. So, what exactly does this disruptive generation demand when buying homes?
App usage is extremely important to millennials, as it accompanies their need for ease and efficiency. By scrolling through homes on various apps, they can essentially limit the time-consuming aspects of searching for a home and spend their time doing more favourable activities. Apps like Zillow and Redfin have gained massive popularity throughout the years, but one specific system that is completely changing real estate for millennials is “TurnKey Home Purchase Service.”
Realogy, the parent company of Coldwell Banker, Sotheby’s International Realty, and other brokerage companies, teamed up with Amazon to craft this service. Buyers take a three to four question quiz on Amazon, and the system pairs users with agents from one of Reology’s companies whom it believes will help serve the buyers most appropriately.
If a home is purchased with the selected Realogy agent, depending on the price, TurnKey will provide the buyers with free smart home products worth between $1000 and $5000 US Dollars. Additionally, Amazon offers the buyers complimentary in-home services, such as cleaning and moving assistance. Home-buying has typically been done in separate parts: finding an agent, working with them to purchase the property, and then actually working to make it a home.
TurnKey represents a new wave of service integrators combining these parts into one, and streamlining the entire process, which is something Millennials appreciate.
This combination of very specific market tools and processes include a dating-app like pairing with a Realtor, streamlined modern search technology, and efficient move-in services, exactly what Millennials crave when moving into their new homes. They want their move to be fast and efficient, so the additional services that TurnKey provides are very enticing for Millennials and are quite the step-up from traditional realty.
Another firm, Flyhomes, an up-and-coming startup hailing from Seattle, is another one of the new real estate apps to keep an eye on. They have a unique business structure, combining brokerage, mortgage, escrow, and home repair all under one roof. They work on behalf of both buyers and sellers, with the goal of making the transaction happen faster. One of their most popular services is the cash offer. A buyer will need to get a pre-underwriting from a mortgage lender. Once this is attained, Flyhomes purchases the property with cash, and the buyer buys it back from them with their mortgage, at the same price, with Flyhomes making a 2-3% commission. The company offers many other services, such as selling and trade-ups. Along with other perks, potential buyers receive rebates, free Lyft rides to and from the home, and Alaska Air miles at closing.
On their app, buyers can view Flyhomes properties, search through their services, and once they are in the process of purchasing or selling a home through Flyhomes, they can track the progress of the deal on the app. Users need not travel to Flyhomes offices to conduct their transactions, as they can be done over the phone or on a video call.
Contrasting itself from iBuyer companies, like Zillow and Redfin, Flyhomes co-founder and CEO, Tushar Garg says, “In the iBuyer case the business model is different; they make money on the delta of the price they sell the house at versus what they buy the house at . . . we only make the money on the commission. Our business model is very much like a traditional broker, but you can think of it as a traditional broker with super powers.” While iBuyer companies function primarily in less-competitive areas, FlyHomes concentrates its efforts in hot real estate markets in the United States, like Seattle, San Francisco, and Boston, where many Millennials are working.
By simplifying both the buying and selling process, Flyhomes has a specific millennial appeal. Buyers only need to initially attain pre-underwriting from their mortgage lender. From there, FlyHomes has the resources to conduct the entire rest of the sale process in house. The company is becoming more and more popular, raising $141 million in debt and equity just this past August. It is likely more services catering to Millennials will be added over time, that reduce search time and or provide tertiary services.
Optimised Home Models
The Millennial generation is driving the telecommuting trend in workplaces. Making up 50% of the global workforce, millennials are demanding to telecommute from their jobs and at the same time, trying to reduce housing costs. This tends to drive the generation out of living in urban areas. Whether they rent or buy, “millennials spend about one-third of their take home pay on housing”. With more flexibility in the workplace, Millennials are able to live farther away from work, work part or full time from home, and seek “optimized” home models that satisfy such needs.
Many millennials searching for homes commonly seek properties that will enhance well-being. These “optimised” homes include meditation rooms, nearby nature trails, and eco-friendly resources. If possible, the generation prefers sustainable development, i.e. homes that use solar energy, built with eco-friendly materials, making the properties as resource and energy self-sufficient as possible. Using natural resources such as light and wind, these homes create profound reductions in their carbon footprints. In fact, Millennials will pay more for goods and services that shrink their environmental impact. Moving out of urban areas provides more opportunities for buyers to locate these types of homes.
With their strict criteria for what they are seeking in homes, millennials are demanding change from the home-buying industry. This up-and-coming generation is arguably the most disruptive force to real estate, making it evolve based on their personal preferences. With streamlined app-based services, enhanced home models, and environmentally-conscious lifestyles, millennials will continue to use traditional realty less and less in the years to come.