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10 Companies Building the Real Estate Marketplace of the Future

Investors are pouring in money hoping to change the transactional broker system

10 Companies Building the Real Estate Marketplace of the Future January 4, 2018 4:00 pm

Jeff Mindham has written dozens of articles/blogs about real estate for brokers and agents across the U.S. Previously, Jeff worked as the marketing head at a number of real estate tech startups including ForSaleByOwner.com, USRealty.com and Foxtons.com. He was also the Senior Vice President of National Marketing for Prudential Real Estate. Before working in real estate, Jeff was a Senior Account Director at a number of New York’s largest ad agencies including J. Walther Thompson and Saatchi. He holds an M.A. and B.A. degrees from the University of San Francisco.

10 Companies Building the Real Estate Marketplace of the Future

Photo Credit: Andriy Popov/123RF

Residential real estate remains one of the hottest categories among private tech investors and venture capitalists. They look at real estate as one of the few remaining categories that has not yet been fundamentally altered by the digital technology revolution. Changed perhaps, on the fringes; profoundly disrupted – not at all.

Hundreds of millions of dollars are being spent to build the marketplace of the future and change the tradition-bound brokerage system in the U.S. To date, no one has introduced a new model that is a real runaway success with the exception of Zillow. Even though they are not a transactional broker, Zillow is probably the one real estate model that has dramatically altered the way agents, brokers, buyers and sellers do business.

Below are some of the current tech startups that are trying to create a new real estate transactional marketplace:


Redfin

Perhaps the oldest of the “new tech” brokerages, Redfin recently went public after 14 years. Their modeled seemed to change every few years. What really makes them different from other online brokers is that they have simply managed to survive this long. Most real estate tech startups of their generation either died or were acquired long ago.

Redfin‘s model is that of a traditional brokerage charging a transaction commission. They have salaried agents and they target both buyers and sellers, although most of their business comes from the buy side.

Redfin

Redfin has successfully positioned their brand as a modern, tech-enabled broker who provides a better service experience. They also offer a significant discount off the commission although they don’t emphasize this as a primary consumer benefit in their marketing.  Instead, they focus on the “superior service experience” claim.


Compass

This tech-enabled brokerage has garnered a lot of press lately because of the superstar agents they have poached from competing brokers. They have raised $800 million and have a market cap of over $1 billion with 1,500 agents in selective cities.

They’ve been very successful in wrapping their brand within a veneer “tech” innovation, although they seem reluctant to say how, exactly, tech improves transaction management and customer experience other than making some rather vague and unsubstantiated claims.

Market App – Compass

Their model isn’t anything new; it’s a traditional full commission brokerage. Nevertheless, they remain the darlings of Wall Street and the VC community for now.


Opendoor

Opendoor has a new model which will dramatically change the way people sell homes. They will buy a home, sight unseen, in as little as three days. And they’ll charge only slightly more than the typical 6% commission most home sellers pay brokers. A new word has even been invented to describe them – iBuyers.

Opendoor is not targeting distressed sellers. Instead, they are looking at the broad middle market of homes that sell for between $125,000 and $500,000 from sellers who are not desperate but simply want a faster, more streamlined transaction.

Opendoor

They rely on sophisticated home pricing algorithms to determine the market value of a property, so they can make a bid sight unseen. Opendoor then buys the home, spruces it up and puts it back on the market.  To do this, you need a very large piggy bank indeed, and OpenDoor has one. To date, they have raised over $320 million from investors and have run up an additional $600 million in debt. One good thing about the cost of running this model is it keeps the competition to a minimum.

The founder of Opendoor is Keith Rabois is a well-known figure in Silicon Valley. He launched this brand a few years ago, first in Phoenix and then Dallas. In those markets, they have achieved an impressive 3% market share. So far, they have sold over $1.2 billion worth of property.  Now they plan to roll out the model in other markets, including Las Vegas, Orlando, and Raleigh.


HomeLight

This Google-backed company is leveraging “big data” to crunch the performance metrics of local real estate agents. They aggregate customer reviews and sales data of over 2 million agents and 29 million transactions. For home buyers and sellers, the service is free. However, real estate agents must pay a 25% referral fee to HomeLight to secure a lead.

Many home sellers rely on word-of-mouth referrals when they pick an agent. It’s not uncommon for a seller to choose an agent simply because they are the wife of their children’s baseball coach, for example. And given that most agents are far from full-time, seasoned professionals, HomeLight provides an objective, data-based means of finding really good agents who have proven success record, not just good connections on the Little League field.

Recently, HomeLight has been running a number of TV commercials on Cable TV which usually indicates that the brand is doing quite well.

HomeLight's definition of success

Purple Bricks

This U.K. based broker has taken Britain by storm. In just three years they have become the fastest growing brokerage in that country with a market cap of over $1 billion. They’ve recently launched their service in San Diego and plan to roll it out in other California markets soon.

Purple Bricks charges a flat listing fee of $3,200 and rebates some of the commission back to buyers. They have agents that help with the transaction and claim they will spend up to $2 million in advertising per market.

Purple Bricks

Their marketing strategy mirrors exactly that of the first large online discount broker in the U.S., who, by coincidence, was also U.K. based – YHD?Foxtons. Spend big, be bold and steamroller the competition.

Will it work? Who knows. One key issue that perplexes many industry observers; with such a low fee, it seems difficult for them to generate enough revenue to be profitable any time soon, if ever.

Search tool – Purple Bricks

UpNest

“When agents compete, you win” is UpNest’s slogan, and that pretty much sums up the model.  

UpNest provides a platform where agents pitch their services and commission amount to sellers.

Sellers pick the agent they like from among 3 to 5 agent proposals they receive within 24-hours. UpNest also offers buyers a percentage of the agent's commission as rebates if they use one of UpNest's agents.

Multiple Proposals – UpNest

This simple model provides sellers with more control over the process and, for the first time, really makes agents work competitively to secure a listing.


Open Listings

This Los Angeles based startup targets home buyers, offering to rebate half of the buy side commission back to the buyer. In California, where home prices are high, this is a significant benefit. For example, a buyer would receive $9,000 on the purchase of a $600,000 home.

Many home buyers are under the misimpression that sellers pay the buy side commission. While sellers do cut that check at closing, they bake in the commission price into the sales price of the home so, in the end, buyers pick up that tab.

Open Listings

Currently, the company has 400,000 active buyers in California. They will be expanding soon out of the state into Seattle, the home of many real estate tech firms. To do this, they’ve recently raised an additional $6.5millon.

Open Listings

ForSaleByOwner.com

This is one of the most successful home buying and selling platforms in the U.S. Also known as “FSBO’s” – For Sale By Owner – this by owner method of selling without a broker represents about 12% of the marketplace.

ForSaleByOwner.com is the largest FSBO site, by far, selling over 10,000 homes a year.

They were bought by the Tribune Company in 2008 with the hope that they could recover much of the real estate classified listing revenue being lost to the Internet.

ForSaleByOwner

ForSaleByOwner.com is a cash-creating machine. Their margins are huge because all they do is post a property online for sale for a few hundred dollars each. They do not get involved with the transaction. However, the success rate among sellers is not high because many of them overprice their homes. Many end up selling with a traditional full commission broker.

How to sell your home – ForSaleByOwner

Knock

Knock is a new startup with a similar model to Opendoor’s. It was launched recently by alumni from Trulia, the large real estate listing platform.

They claim they can sell your house in 6 weeks or less. Sellers get a “price guarantee” within 24 hours from Knock based on their home pricing algorithm.

They also used a 200-point onsite inspection to price homes. Knock then comes in and fixes the home up for sale, and lists it on the major real estate portals like Zillow.

Dashboard – Knock

If the home sells within 6 weeks they collect a 6% commission. If it doesn’t sell, Knock buys it. Now here’s what’s interesting, Knock will give the home seller 90% of the appreciation on the house if it sells within one year. Not a bad deal.

Knock

GoldenKey

GoldenKey, formally known as SoloPro, is a non-commission, fee-for-service model that allows buyers and sellers to pick from a menu of services.

For example:  pricing a home – $100, making an offer – $200 and showing a home – $100.

Sellers can also buy a comprehensive package of services for a flat fee of $3,500. They claim to leverage technology to unbundle real estate transaction services.

Let investors compete to give you the best offer – Golden Key

They received their initial round of funding from the Lowe’s home improvement chain.

GoldenKey

All of these players want to change the real estate marketplace of the future. However, the graveyard of failed real estate models – and there are many – is a place many of them will undoubtedly find themselves. Hopefully, it’s not one you invested in.

Jeff Mindham has written dozens of articles/blogs about real estate for brokers and agents across the U.S. Previously, Jeff worked as the marketing head at a number of real estate tech startups including ForSaleByOwner.com, USRealty.com and Foxtons.com. He was also the Senior Vice President of National Marketing for Prudential Real Estate. Before working in real estate, Jeff was a Senior Account Director at a number of New York’s largest ad agencies including J. Walther Thompson and Saatchi. He holds an M.A. and B.A. degrees from the University of San Francisco.

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