For years, the U.S. housing market has seen waves of innovation—from online listings to digital mortgages to instant offers—but the pace of transformation has been slower and more uneven than in sectors like retail, banking, or travel. Despite real demand for convenience and transparency, structural frictions have kept the transaction process largely intact.
Three recent developments suggest that change may be accelerating. First, the National Association of Realtors (NAR) settlement challenges the long-standing commission structure, opening the door to new compensation models. Second, Rocket Companies’ acquisition of Redfin signals a renewed push toward vertically integrated, tech-enabled real estate platforms designed to streamline the entire transaction process. Finally, the rise of generative AI and conversational interfaces adds new momentum to this shift, promising to simplify and automate further tasks like search, customer service, and document preparation. These shifts point toward a more digital, consumer-centric future—but they also sharpen a deeper question: what drives real estate innovation, and why has it often fallen short?
Innovations So Far
Over the last two decades, a series of innovations have aimed to simplify, digitize, or disrupt various parts of the housing transaction. Zillow changed how people search for homes by democratizing listing access and home value estimates. Redfin positioned itself as a tech-enabled brokerage, aiming to make agents more efficient through salaried employment, centralized support, and integrated digital tools, while offering buyers built-in commission rebates. Rocket Mortgage (formerly known as Quicken Loans) made mortgage applications fast and mobile-friendly, becoming the largest mortgage lender in the country. And most recently, iBuyers like Opendoor, Zillow Offers, RedfinNow, and Offerpad attempted to introduce instant home sales using pricing algorithms.
What Drives Real Estate Innovation?
As my work shows, real estate innovation is driven by one clear factor: consumers value convenience and speed and are willing to pay for it. I found that fintech mortgage lenders like Rocket didn’t compete by offering lower interest rates; they actually charged more—on average 14–16 basis points higher than traditional bank lenders—but won market share by offering a faster and easier digital borrowing process. Borrowers valued time, certainty, and simplicity over marginal savings. This same dynamic helps explain the rise of iBuyers, who purchase homes directly through online platforms. My analysis of transaction records shows that many sellers are willing to accept a 3 percent price discount on average in exchange for avoiding the traditional sales process. The speed and certainty of an instant offer carry real economic value.
Key Challenges to Innovation
Each of the innovations so far addressed real pain points—friction, opacity, paperwork, and slowness—but most collided with the same challenge: housing is complex, locally variable, and emotionally charged. Unlike, say, selling books on Amazon or ordering Uber rides, home sales are infrequent, meaning there are few repeat customers to build ongoing relationships or brand loyalty. It is also the single largest financial decision most households make, and one they face only rarely. On top of that, housing markets are highly fragmented across regions, with different legal, regulatory, and institutional structures. And homes themselves are not uniform products: every property is unique, with quirks and features that make valuation difficult—and that different consumers may value in very different ways. Pricing a house isn’t like pricing a car or a phone—two homes on the same street can differ in condition, layout, backyard quality, and so on. This combination of high stakes, low individual transaction frequency, local fragmentation, and the inherently idiosyncratic tastes makes real estate far harder to automate and standardize than almost any other major consumer transaction.
These challenges also help explain why most leading real estate tech companies have struggled with profitability. As the figure shows, Zillow and Opendoor have operated with persistently negative margins, generally in the range of –5 to –15 percent, underscoring how difficult it is to achieve profitability even at scale. Redfin stands out for its volatility, with margins plunging to nearly –30 percent in 2022 before partially recovering, though still remaining negative. Only Rocket Companies has consistently maintained margins above or close to break-even. Taken together, these trends highlight that while these firms have grown in prominence and reshaped aspects of the housing market, most remain unprofitable, reflecting the structural challenges facing technology-driven real estate businesses. On the other hand, these businesses are still in a growth phase, and, as the example of Amazon demonstrates, it can take time before such firms achieve sustained profitability.
